Communication Services Select Sector SPDR Fund ETF (NYSEARCA:XLC), which tracks S&P 500 Communication services sector, gained over 5% during the second quarter, outperforming the 4.6% rise in the broader S&P500 Index.
The communication services sector, which consists of stocks including Alphabet (GOOG), Meta Platforms (META), Disney (DIS) and Comcast (CMCSA), were among the three S&P500 sectors that outperformed the benchmark index during the quarter.
The others include Utilities (XLU), with a gain of 5.6%, and Technology (XLK), with the highest gain of over 8%.
Investors were impressed by Alphabet after its quarterly results easily cleared analyst expectations as revenues jumped 15% with strong performance particularly at YouTube. The Google-parent also launched its first dividend.
The stock saw a growth of over 19% during the second quarter.
However, there was some disappointment among the market watchers when Meta’s guidance for the current quarter came in on the light side. Still, the “Magnificent Seven” member gained nearly 4% during Q2, while it rose over 30% so far this year.
So far this year, XLC leads the pack with a gain of nearly 19%, closely followed by XLK, which gained 17.5%.
Industries Second-Quarter Performance
Media & Entertainment rose 10% during the second quarter, while Telecommunication Services gained nearly 3%.
U.S. stock fund flow in and out of the sector was average throughout the second quarter, with some noticeable dip during the months of April and June. The Communication Services-focused ETF (XLC) had a net outflow of -$97.59M as of June 27.
Top 5 Performers for Q2:
- Alphabet (GOOG) +20.7%.
- Fox (FOX) +11.9%.
- Netflix (NFLX) +11.1%.
- AT&T (T) +8.6%
- T-Mobile US (TMUS) +7.9%.
Bottom 5 Performers of Q2:
- Walt Disney (DIS) -18.9%.
- Match Group (MTCH) -16.3%.
- Warner Bros. Discovery (WBD) -14.8%.
- Live Nation Entertainment (LYV) -11.4%.
- nterpublic Group of Companies (IPG) -10.9%
What Quantitative Measures say?
XLC received a Buy rating from Seeking Alpha’s Quant Rating system, with a score of 4.36 out of 5. The sector got A+ for liquidity and momentum. However, it was given a C- in the prospect of dividends.
What analysts expect?
One analyst surveyed by Seeking Alpha in the last 90 days gave the sector a Buy, while one rated it a Hold.
Seeking Alpha analyst Ricardo Fernandez pointed out the ETF is built with significant earnings power.
“While Meta and GOOGL are expected to have high growth, I found the market also forecasts significant EPS gains for T-Mobile, Netflix, Disney, and Take-Two that more than compensate for the mature growth of many telecom, cable, and news stocks,” Fernandez added.
Another Seeking Alpha analyst Komal Sarwar said the communication services sector is expected to generate strong earnings growth and contribute to the ETF’s upside.