Investors spent the week worrying about an AI bubble. The S&P 500 slipped by 0.5%, led by a 6.2% drop in Communication Services (MW), which was the worst-performing S&P 500 sector (table). Yet, Information Technology fell just 0.3%. Energy (OW) led the winning sectors with a 1.6% gain, followed by Health Care (OW), up 1.5%.
Bubbles inflate valuation multiples. This year, multiples have contracted. The S&P 500's forward P/E has fallen to 18.6 from 22.2 at the end of 2025 (chart). Information Technology's forward P/E is down to 19.0 from 26.5. Stocks have gotten cheaper this year as earnings growth outpaced stock price gains.
Here's more on the Communication Services, Materials, and Energy sectors:
(1) Communication Services. Meta's Q3 report last Wednesday hit the sector hard. Its free cash flow turned negative for the first time since its 2012 IPO, and it raised its 2026 capex guidance floor to $135 billion. Its shares fell 7.0% and Interactive Media & Services fell 4.3% on Thursday, closing down 7.0% for the week. Alphabet and Meta dominate the sector. Together they account for 81.8% of its market cap and 70.0% of its forward earnings (chart).
