Communication Services Slips as Internal Breadth Stalls

The Session

On Friday, September 25, the Communication Services Select Sector SPDR Fund (XLC), an exchange-traded fund tracking the Communication Services sector, closed -0.9% as weak member breadth held back performance. Only 26.3% of the sector's stocks recorded gains, while the cap-weighted sector finished -0.6%. The move came on a day when broader equity markets climbed and 8 of the 11 sectors rose. Communications struggled to keep pace as investor scrutiny of tech capital spending and a sharp drop in Charter Communications dragged down key holdings.

Drivers and Dispersion

Performance across the sector showed sharp divergence among individual constituents:

• Omnicom Group Inc paced the gainers, finishing +1.9%.
• Alphabet Inc Class C added support among large-cap names, closing +0.6%.
• Charter Communications Inc led the decliners, ending the session -3.9%.

The sector's equal-weighted return stood at -0.7%, closely tracking the cap-weighted decline of -0.6%. This alignment confirms that weakness was distributed across both large and smaller members rather than concentrated in a single stock. Even with gains in select software and cloud names, selling in major internet platforms and cable providers kept overall sector performance negative.

Quality Profile and Fund Structure

For investors using XLC as their vehicle for the sector at an expense ratio of 0.08%, the fund's composition reflects underlying quality divisions. EasyAlpha grades 87.1% of the fund's total weight.

Within that graded portion, 27.9% sits in companies graded A or B. EasyAlpha grades each company against its industry peers based on historical analysis. Companies graded A or B exhibit stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E.

That limited presence in the top quality tiers coincides with a mixed longer-term record for the fund. While XLC has gained +5.5% over the past six months, it stands -2.3% over the past 100 sessions and -3.5% over the past twelve months.