S&P500 sector performance 2022 YTD (Q1-Q3)

As of end of Q3 of 2022, here is how the s&p500 sector performance looks:

Source: Visual Capitalist,  

Who would have thought communication services would be the worst YTD so far? I never would have. Communications, especially media companies, is sensitive to the economy but telecom/cable/etc tend to be more stable so this sector usually does badly but is not the worst during bear markets. There are two reasons communications has underperformed:
  1. Recession/economic slowdown: Although the US economy is doing ok, the market is pricing in major slowdown. In particular, market is forecasting big declines in advertising revenue for media companies. This makes sense given that stock markets usually lead actual recessions by something like 6 months.
  2. High leverage: Telecom companies leveraged up to crazy levels and riding interest rates adversely impact them. Although the smarter ones (like Charter) took on very-long-term debt, it still means they lose flexibility and can't do what they where doing before. For example, issuing debt to buyback shares won't be feasible going forward.

The performance of the individual components shows how badly some have done:

 Source: barchart.com

For a contrarian, these beaten down stocks look more attractive than other beaten down sectors. Unlike consumer discretionary, information technology and the like, communication services companies have more predictable future and earnings. 

I think Meta ($META) and DIS ($DIS) look attractive. I haven't researched it invested in telecom companies before (except in special situations) but Comcast ($CMCSA) and Charter ($CHTR) look interesting as well.


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