S&P 500 gets new look as it shuffles key companies

NEW YORK — It’s almost moving day on the stock market.

The line-ups of three of the 11 groups that make up the benchmark S&P 500 index are being shuffled as of Monday. Twenty companies in the index including famous names like Facebook, Alphabet and Netflix will find a new home.

The most notable change will occur with the telecommunications group, currently the smallest piece of the market. It gets reinvented as communication services and grows from three to 19 companies, adding some key names from the technology and the consumer discretionary sectors.

The S&P’s changes reflect the way the communications and media industries have evolved. AT&T and Verizon were once known as phone companies, but they’re now media companies as well: AT&T just bought Time Warner, the parent of HBO and Warner Bros. movie studio, and Comcast bought NBCUniversal in 2013. Streaming services were a big reason for the telecom industry’s shift, and now those companies will be in the same part of the market as Netflix.

The S&P index itself will still be made up of the same 500 companies, but the moves could change how investors think about them and how they approach the market. Analysts will help shape those views as they publish research on the new sector.

The stock market could become a bit more volatile since many ETFs and funds offer products that track the S&P 500’s sectors. They’ll make trades to match the changes in the S&P 500.

The three companies in the telecom group right now are AT&T, Verizon, and their smaller peer CenturyLink. Next week they’ll be joined in the new sector by some broadcasting and media companies, video game publishers and social media companies. Alphabet and Facebook are the most notable additions — their combined value of about $1.25 trillion will account for about half of the new sector’s total value.

The old telecommunications sector has been considered a safe bet because AT&T and Verizon pay big dividends and their stocks tend to do well when the broader market declines. The new sector looks a bit riskier.

Sam Stovall, chief investment strategist for CFRA, said the new sector is characterized by “Very volatile or cyclical companies like Netflix (and) Facebook that are going to be very high growth oriented when the market is doing well, and could get absolutely slammed when the market goes down.”

Consider that shares of Alphabet and Facebook have struggled since July. Netflix and Twitter — another company moving from tech — also suffered sharp declines over the summer as investors worried about their user growth and the possibility of new regulations affecting their earnings.

Along with Alphabet, Facebook and Netflix, the communication services sector will include broadcasters like CBS and Discovery, cable and internet companies like Comcast, movie studios such as Disney and video game makers like Activision Blizzard. Stovall said the technology, consumer discretionary and communications sectors will be more “pure plays” after the move.