Economic uncertainty and turmoil tends to drive investors to safer havens, and telecommunications equities recently have been beneficiaries of those trends.
Telecommunication shares have posted the sharpest advance among the Standard & Poor’s 500-stock index’s 10 sectors in the past three months, followed by utilities. Of course, you also know what that means. There will be sector rotation.
Telecom and utilities stocks’ reputations as safe havens have made the sectors attractive as investors have sought to avoid investment damage caused by Europe’s debt crisis.
The S&P 500′s telecom sector is at a four-year high, as a result.
Such companies’ profits and margins typically hold up when economic growth slows. Their share prices are fairly stable, and they tend to get a large portion of their revenue from the U.S. market, which to many seems safer than Europe or some other markets, at the moment.
But sentiments changes, especially when a sector begins to approach an “overbought” condition, which some might say telecom equities are approaching.
As always seems to be the case, too much favorable sentiment is a contrarian indicator. If “everybody” likes the sector, most people who want to buy, already have.