How Do Sector Changes Affect Benchmark Indices?

From Reuters to Marketplace, economic and financial news shows like to ‘do the numbers.’ They often review economic indicators, Federal Reserve rate changes, or benchmark index performance.

In general, these statistics are intended to help people gauge how economies and markets are performing. For instance, when Gross Domestic Product (GDP) – the value of all goods and services produced by a nation during a certain period of time – moves higher, it means the economy grew during the period. When GDP moves lower, the economy contracted during the period.

Asset managers and investors rely on benchmark indices, like the S&P 500 Index, to measure the relative performance of investment portfolios. The S&P 500 is a benchmark for large U.S. company stocks. It includes companies from diverse sectors including:

Information technology
Healthcare
Financials
Consumer discretionary
Industrials
Consumer staples
Energy
Utilities
Real estate
Materials
Telecommunications services

But, wait, change is coming!

Soon, benchmark indices will have a new sector. At the end of September 2018, Telecommunications Services will become Communication Services. The name is changing and so are the companies that will be included in the sector. Ben Levisohn at Barron’s reported:

“The biggest changes will be around some prominent companies that will migrate out of the information-technology and consumer-discretionary sectors and into a new communication-services sector…[The changes] certainly don’t herald any fundamental changes for the companies involved. But they do have the potential to create short-term noise…”

If you’d like to learn about the ways sector changes may affect benchmark indices, give us a call at 877-340-1717.

WOMACK INVESTMENT ADVISERS, INC.
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Phone (405) 340-1717 - Toll Free (877) 340-1717

Website: www.womackadvisers.com

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