A few weeks back, it was announced that the market index (S&P 500) would add a new communications sector to its sectors. This new sector effectively takes over the telecommunications sector and is changing up the way other sectors are weighted, and the classification of some of the largest holdings in the market are changing. As college students, many of you may be thinking why is this particular shift important to me? I am here to tell you there are a multitude of reasons to watch for the switch in the market and take notes.
First, if you have any investments, your portfolio will almost certainly change. Some very large names like the Walt Disney Company, Apple, Verizon, and Alphabet (Google) will be moving sectors, thus changing the make up of any portfolio. This will be extremely interesting as the economy is predicted to dip into a recession in the coming 24 months and as the economy starts to dip, the industry will be keeping an eye on the new sector and how it reacts to the economic conditions. Many sectors take hard hits when the economy starts to tank. These sectors include consumer discretionary, information technology, telecommunications, materials, and utilities. These sectors are less essential in everyday life than say consumer staples or healthcare. These industries are always going to outperform in economic downturn because they are essential to basic human living.
Second, many companies that you know and use are moving. Although this will not affect the quality of product or the way it is branded, it may affect investor’s opinions, which, in turn, affects the company’s financial situation. The biggest names moving to the new sector are Facebook (FB), Netflix (NFLX), Alphabet (GOOGL), and Walt Disney Co. (DIS). Most people will scroll their their Facebook feed today, or if not they will scroll through the Facebook owned, Instagram. Google has become a verb due to its use. These companies are household names and joining a new sector will not only affect the company, but also you, as a consumer of the product.
Third, as we prepare ourselves to enter the adult world, news like this is something that is worth paying attention to. Although it may not directly affect the industry you wish to pursue, the stock market and how it acts will always be a topic of conversation and staying up to date on the news will keep you informed throughout your life.