Volatile days loom for media holdings

NEW YORK — A slew of negative news has reversed the early 1994 rally in cable shares, deepening an overall stock market slide prompted by rising U.S. interest rates.

Forecasts of a 10% retreat by the Dow Jones Industrial Average conjure up a bearish outlook for cable and other media issues. Those shares have soared in recent months on merger speculation and optimism about the interactive future, but that hope — or hype — is exactly what will deflate if the broad market sinks.

“The broadcast-media group peaked in the later part of ’93, has faltered again and looks decidedly weak,” says equity analyst Jim Schroeder at MMS Intl. “It’s currently testing (an important) support level, so perhaps you will see a bit of a rebound, but the group has to rally considerably to turn this around.”

Wall Street’s uneasy mood stems from recurring nightmares that the Federal Reserve will stage a revival of its Feb. 4 horror show, when the central bank raised lending rates slightly to stave off inflation. That day, the Dow fell almost 100 points.

While a hopping mergers-and-acquisitions market has made the media sector Wall Street’s flavor of the moment, heavily leveraged cable operators are just like banks when it comes to interest rates: Low is good. And high is especially bad when federal regulators are imposing cable rate cuts.

The Federal Communications Commission’s latest 7% cut in cable rates, the subsequent collapse of the Bell Atlantic/Tele-Communications Inc. merger and delays in Time Warner’s Orlando video-on-demand tests have provided plenty of reasons to sell.

“They rattled these things pretty well,” says one trader. “It’s not that (interactivity) won’t happen, it’s that it will happen later. But that uncertainty will shake out all the weak sisters.”

On March 4, Tele-Communications Inc. ended at $ 23.50, off 29.3% from its 52 -week high, and Time Warner closed at $ 37.38, or 20.3% below its 52-week high. Cablevision Systems settled at $ 58.63, or 18.6% under the 52-week best, and Comcast ended at $ 20.50, off 14.6% from the high.

That same day, the Dow closed at 3,832.30, or 3.7% below its record closing high of 3,978.36. The S&P 500 index settled at 464.74, or 3.6% below the record high, and theNasdaq composite index finished the week at 790.54, a mere 1.2% under the prior record.

Earlier in the week, government figures showed more evidence of strong U.S. economic growth and some price pressure in the wholesale sector, which sent bond yields soaring and spooked stock investors.

Analysts expect more of this volatile pattern as the market finds its footing. They caution that stocks are even more vulnerable to bad news and rumors than normal.

David Katz, chief investment officer at Matrix Asset Advisors, says: “1992 and 1993 spoiled people. It was the least volatile market in 30 years. This year , it will be tougher to make money. I don’t think we are looking for a correction, but there will be a lot of days where the Dow swings 50 points.”

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