Communication Services Slips as Rate Concerns Weigh on Netflix

Breadth across Communication Services was narrow on Friday, September 4, with only 21.1% of member companies finishing in positive territory. The cap-weighted sector closed -1.0%, outperforming an equal-weighted move of -1.7% because larger constituents cushioned the broader group from deeper declines. The exchange-traded fund Communication Services Select Sector SPDR Fund (XLC) closed -1.2%, weighed down by Netflix Inc (-5.3%). The sector fell after government data showed nonfarm payrolls expanded by 162,000 in August. That labor strength spurred concerns that the Federal Reserve could raise interest rates. The shifting rate outlook triggered selling across rate-sensitive communication businesses.

As bond yields climbed following the jobs release, higher Treasury yields and interest rate repricing pressured Netflix. The company faced additional pressure after announcing plans to raise subscription prices in the United Kingdom, which included a 33% increase on its ad-supported tier. In contrast, modest gains from Meta Platforms Inc. (+1.0%) and Charter Communications Inc (+0.4%) helped keep the cap-weighted sector from dropping as sharply as its equal-weighted counterpart. Across the broader market, 3 of the 11 sectors rose.

EasyAlpha grades 87.1% of the holdings in XLC, which closed the session at $112.05. Within that graded portion, 27.6% of the assets sit in companies graded A or B. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E.

As a vehicle for accessing the sector, XLC provides low-cost exposure with an expense ratio of 0.08% across its $21.7 billion in assets. While the fund moved +0.8% over the past month, its performance of -4.5% over the past hundred sessions and -2.3% over the past twelve months shows how rate sensitivity has checked sector progress over longer horizons.