The neck-and-neck horse race for first place among equity sectors has recently given way to a decisive lead for communications services stocks year to date, based on a set of ETFs through Tuesday’s close (Dec. 10).

As previously reported, communications (XLC) and financial (XLF) had been essentially tied for first place this year. But the competition turned into a clear lead for communications after XLF’s recent stumble while XLC held its ground. As a result, XLC is now the performance leader with a sizzling 39.2% rally so far in 2024, well ahead of XLF’s 33.7%.

One thing that hasn’t changed: both sectors continue to outperform the broad market by a wide margin: SPDR S&P 500 (SPY) is up a strong but distant 28.0%.

What’s the source of XLC’s resilience? It’s largest holding, Meta Platforms (META), is holding on to a red-hot 76% gain in 2024 – a key factor for XLC’s 20% portfolio position in the stock, according to Morningstar.com.

XLC’s second biggest holding – Alphabet Class C (GOOG) with a 10% weight – is also having strong year, especially after it’s recent rebound from a summer selloff. Year to date, GOOG is now up nearly 33%.

Although all US equity sectors are posting gains year to date, there’s a wide disparity between the leaders and laggards. The weakest performer in 2024: healthcare (XLV), ahead by a relatively modest 6.9%.

Healthcare has suffered a one-two punch lately in terms of sentiment. The election of Donald Trump last month was the first blow. Uncertainty about US policy related to healthcare has been in focus following Trump’s nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services. RFK is considered a controversial choice, in part due to his opposition to vaccines, which could impair efforts to get new vaccines approved. Kennedy is also a skeptic about obesity drugs, which have become a crucial source of new revenue for several healthcare firms.

A more recent headwind is the heightened scrutiny of policies in the healthcare insurance industry after last week’s murder of Brian Thompson, CEO of UnitedHealth Group, the second largest holding of XLV at just under 10%.

“I think the response investors have had is, ‘do we want to own this category of stocks if there’s going to be this now renewed negative focus on the industry?’”, says Jared Holz, Mizuho’s health-care equity strategist.     

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