NEW YORK — Entertainment stocks, despite being latecomers to Wall Street’s big party of the past few years, were hard hit by Monday’s market plunge. Almost every entertainment stock was down, on average by 5%, as were most cablers and broadcasters.
They were part of the biggest one-day fall in the history of Wall Street, as jitters turned into a sharp-edged market correction and prompted suspension of stock market trading after the Dow Jones Industrial Average fell 554.26 points, or 7%, to 7161.15.
In point terms, the fall was bigger than the 1987 crash when the Dow fell 508 points to 1738.4. But in percentage terms, Monday’s sell-off was mild compared with the 22.6% drop of 10 years ago, highlighting how much the Dow has climbed since then.
After a heavy sell-off in the last two days of last week, the Dow has now fallen 899 points or 11% since last Tuesday’s high of 8,060.44, prompted by a sell-off in Hong Kong late last week that was related to economic problems throughout Southeast Asia.
The U.S. economy is the strongest it has been in many years, but the sell-off touched a nerve among U.S. investors because the U.S. stock market has risen so far in the past few years. Before the latest sell-off, the Dow was up 54% since the start of last year and 25% this year alone, and it had become increasingly volatile in recent months. Several Wall Streeters predicted further selling today before a bounce-back.
Disney leads showbiz drop
Leading the showbiz drop was Walt Disney Co., a component of the Dow Jones index, which fell $4.62 to $77.75. Time Warner, which hit an all-time high last week of $60, dropped $3 to $56.12, while Viacom fell $1.68 to $27.93 and News Corp. dropped 75¢ to $18.12.
Seagram Co. Ltd., which last week got a lift from the sale of its TV interests to HSN Inc., dropped $2 to $34.18, while HSN dropped $3.37 to $39.75. It has fallen from a high last week of $48.
Cabler Tele-Communications, lately enjoying a long-awaited recovery, dropped $1.81 to $20.37. Theater exhib stocks were not spared the lashing, with AMC Entertainment down $1 to $18.75 while Carmike Cinemas fell 68¢ to $31.75.
Among the broadcasters, the worst hit was No. 2 radio group Chancellor Media, which fell $8.37 to $49.25 — a decline of 15%, reflecting how far Chancellor has risen.
Sell-off may continue
Whether the sell-off continues today is anybody’s guess, although several Wall Streeters said the early closure of the market Monday meant further selling would likely open today’s trading. “I think it’s going to be a wave,” said one banker.
Working under rules devised by financial regulators after the 1987 crash, stock market trading was suspended about 2:35 p.m., after the Dow had fallen 350 points. The suspension, meant to be a “circuit breaker” on selling, lasted 30 minutes. But when the market reopened at 3:05 p.m., the selling began immediately and another circuit breaker came into effect when the Dow was down a total of 554 points about 3:30 p.m.
Some felt vindicated
Some longtime bears felt vindicated. “I have been feeling better than most people,” said Cowen & Co. analyst Harold Vogel, who said he had pulled buy recommendations off almost every stock he follows in recent months.
“I thought that the entertainment sector fundamentals were deteriorating through the summer,” Vogel said, citing the lack of growth in box office admissions, weakness in video rentals, decline in recorded music sales and problems in Asia, which sparked the market sell-off.
Vogel predicted that investors “have seen the highs on the stocks for this cycle.”
In contrast, some money managers and analysts said the correction has brought some entertainment stocks back into reasonable valuation levels.
“I’m peering out of the bunker,” quipped Brian Stansky, a vice president with money managers T. Rowe Price. He said the market sell-off hasn’t prompted the firm to do anything differently and some stocks may become a buy again.
“The biggest concern in the market right now is that the country will go into a recession caused by a slowdown in Asia,” said Lehman Bros. analyst Larry Petrella. “I think the entertainment stocks are very much recession-resistant.”
While broadcasters and theme park owners tend to be hurt in economic downturns, cable operators were highly recession-proof and are helped by low interest rates, Petrella added.
Others said the sell-off didn’t suggest the start of a major bear market. “The market has been overvalued and this is a healthy correction,” said one trader, who added that Monday had a very different feel from the panic of Black Monday in 1987.
Nevertheless the sell-off put a halt to most deals, as Wall Streeters waited to see where the market would end up, although radio consolidation continued when Jacor Communications announced plans to buy Nationwide’s radio group for $620 million (See Business, page 4).
The situation appeared to be worsening overseas early this morning. Hong Kong’s Hang Seng Index plummeted 1,632 points, or 15.5%, in that market’s most troubling selling session ever. Hong Kong Chief Executive Tung Chee-hwa held his first crisis cabinet meeting since Britain ceded the territory in July.
The Australian share market suffered its worst day since the 1987 crash, diving more than 10% in this morning’s first few hours of trading.