NEW YORK — Stocks were hammered and media shares bruised even more as the world’s biggest exchange surged to life with record-breaking but orderly trading astoundingly free of major technical glitches.
The Dow Jones Industrial Average plunged 685 points, or just over 7%, in its first session after an historic four-day hiatus. An unprecedented 2.37 billion shares changed hands.
The dip, the exchange’s biggest point loss ever, wiped out an estimated $600 billion in stock market wealth. It came even as the Federal Reserve lowered interest rates Monday for the eight time this year and a number of companies announced share repurchases.
Still, many considered the day a triumph. “We got the markets open. The direction maybe wasn’t as important. It’s a start,” said Barry Hyman, an investment strategist at Ehrenkrantz King Nussbaum in New York.
The New York Stock Exchange is a stone’s throw from the mountain of debris and plumes of acrid smoke that used to be the World Trade Center towers. The area is still closed to traffic and dotted with police checkpoints. Yet a nearly full house of some 3,000 traders and support staff crowded the exchange floor and 250 reporters looked on.
Many had anticipated an even steeper drop in share prices. They still worry that losses will mount along with political and economic uncertainty. “We have always been the market to go to when there’s instability in the world. That’s not the case anymore since we’re fighting a potential war in our homeland,” Hyman added.
He and others fear volume may dip in the next two days as many celebrate Rosh Hashanah, the Jewish New Year. Thin trading in uncertain times can mean excessively volatile shares prices. In the near term, they believe, stocks may rally, echoing dramatic swings in overseas markets. “But one or two months from now, I don’t see it much higher than these levels,” said another market strategist.
Media stocks, most dramatically Walt Disney, were hit by the conspicuous and prolonged lack of commercial advertising on broadcast and cable TV nets. Video retailing, led by Blockbuster and Hollywood Entertainment, was one of the rare sectors to avoid the massive selloff.
Blockbuster, which rose 3.5% to $19, reported increased traffic beginning last Tuesday, the day of the attack, and continuing through the weekend, when results outpaced the norm. Hollywood Entertainment shares jumped 15% to $9.90.
“I think people were responding to a cocooning instinct,” a Blockbuster spokeswoman said. “People wanted to be able to watch something other than the news broadcasts, particularly people with children.”
“Short term, people need to escape from the reality,” agreed Fahnestock & Co. analyst Barry Sosnick. “There’s going to be some avoidance of public spaces, an avoidance of travel. Fewer new films are going to be released. In that kind of environment, home entertainment takes on more importance.”
Other issues weren’t so lucky. Disney plunged 18.4% to $19.25. News Corp. fell 14.2% to close at $26.40; Viacom dipped 12.9% to end at $33, and AOL Time Warner was off 12.8% at $30. All fell further and faster than the overall market.
Vivendi Universal, which had been trading, and mostly falling, in Paris all last week, dropped 6.5% to $41.60.
“The effect on media stocks is so obvious,” said on analyst. There’s a loss of revenue that’s got to play itself out. Leisure stocks don’t do well in periods of hostility, and media is more or less part of that group.”
A dubious positive is that media shares have already taken a severe hit this year, so they may not have much further to fall. A slow economy that now seems to be headed straight for recession and the dot-com fallout had been shrinking ad revenue for months. Media shares will be among the first to move higher when the economic outlook brightens, but the timing of that is now even harder to predict.
So Wall Streeters have started reworking their earnings estimates. New numbers should start trickling in during the week. “It’s become painfully obvious that the $40 billion in revenue and $11 billion in cash flow AOL Time Warner promised (for 2001) is unachievable,” one said.
Many doubted the giant would meet those numbers anyway. In fact, the crisis may have given media congloms a real excuse for not hitting the ambitious financial targets they promised would result from merger synergies and growth.
(Paul Sweeting and John Dempsey contributed to this story)