Meta and Mega-Caps Drag Communication Services Lower

Weakness in heavyweight technology and media constituents drove the communication services sector lower on Monday, September 28, with Communication Services Select Sector SPDR Fund (XLC), an exchange-traded fund, closing -1.6% at $111.20. Internal breadth was narrow, as only 30.0% of sector members advanced, and the cap-weighted sector return of -1.7% trailed the equal-weighted result of -0.8%. The drop was led by Meta Platforms Inc., which finished -4.8%. Macroeconomic headwinds set the backdrop, as rising yields pressured growth stocks in a session where 3 of the 11 sectors rose.

Company-specific selling in Meta Platforms Inc. compounded the sector's losses. Shares of the social media company retreated as investors weighed competition from new artificial intelligence assistant tools. Because the fund is heavily weighted toward its largest components, that pullback easily eclipsed gains across smaller media holdings. Paramount Skydance Corporation Class B Common Stock posted +3.2% and News Corp A recorded +2.1%, but their modest index footprint could not offset the pressure from the sector's largest platform.

For investors using XLC as their vehicle for the sector, the underlying quality composition adds context to these moves. EasyAlpha grades 87.0% of the fund by weight, with 22.8% of that graded weight landing 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. Over longer horizons, XLC has recorded -0.2% over the past month, +3.0% across the past six months, -5.2% over the past 100 sessions, and -5.9% over the past twelve months.