The iShares U.S. Telecommunications ETF (NYSEArca: IYZ) and the Vanguard Telecommunication Services ETF (NYSEArca: VOX) have each lost about 2% over the past two weeks, which could be confirmation of the telecommunications sector’s vulnerability to rising interest rates.
AT&T (NYSE: T), one of the marquee holdings in IYZ and VOX has recently gained some bullish backing as the company puts the final touches on its acquisition of DirecTV (NasdaqGS: DTV). However, with market observers treating telecommunications names in similar fashion to utilities, it is hard to predict upside for telecom ETFs ahead of a Fed rate hike.
The Fidelity MSCI Telecommunication Services Index ETF (NYSEArca: FCOM) tops its rivals with a larger AT&T allocation. And those looking for another, albeit odd catalyst, for AT&T, consider the recent track record of stocks expelled from the Dow. Alcoa (NYSE: AA), Bank of America (NYSE: BAC) and Hewlett-Packard (NYSE: HPQ), the last three stocks booted from the Dow, are up an average of 32% since leaving the index in September 2013. [Telecom ETFs Pinched by AT&T Exit]
“Conversely, one of the primary concerns for the bulls at this level could be the recent bearish crossover between the MACD indicator and its signal line (red circle). Since there is not much room to drift lower before breaking below major support, the price movements over the coming days could act as a leading indicator as to the direction for the remainder of 2015. Given the conflicting signals, it may prove prudent for the bulls to remain on the sidelines until it is clear that the support level will be able to hold up or not,” said Investopedia of IYZ.
International telecom stocks and exchange traded funds represent an option for yield-starved investors that are also looking to reduce their exposure to rising U.S. Treasury yields. That theme can be accessed with the iShares Global Telecomm ETF (NYSEArca: IXP), but IXP faces technical issues of its own as that ETF recently made an ominous death cross, according to Investopedia.
iShares U.S. Telecommunications ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.