Your Favorite Sector’s Getting Reshuffled

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Everyone loves tech. Did you know the sector’s about to get reshuffled?

Over the years, “technology” has become an increasingly ambiguous term. What do semiconductors have in common with phone companies? Why should routers and photocopiers get lumped alongside social media? That kind of thinking might have made sense in the old days, but it’s not 1997 any longer.

The index folks at MSCI and S&P are responding with the creation of a new Communications Services sector (XLC) on Monday, September 24. It will draw companies from the two existing groups.

Technology (XLK) will contribute the big kahunas:

  • Search: Alphabet (GOOGL & GOOG)
  • Social media: Facebook (FB) and Twitter (TWTR)
  • Telecom: AT&T (T), Verizon Communications (VZ), CenturyLink (CTL)
  • Video games: Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two Interactive (TTWO)

Consumer-discretionary (XLY) will contribute media companies including Netflix (NFLX), Walt Disney (DIS) and Comcast (CMCSA). Advertising/marketing firms like TripAdvisor (TRIP) and Interpublic (IPG) will also join.

After the changes, technology will be more focused on hardware (chips, routers, devices) and software, and less on e-commerce. Apple (AAPL) will also account for a proportion of the slimmed-down sector.

In conclusion, technology’s more important to the economy and stock market than ever. As it’s gotten bigger and other industries have shrunk in proportion, it only makes sense for the index groups to correspond more closely to the new reality.

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