Obama warning on fiscal cliff plus Europe crisis worries Wall Street
Media shares were swept lower Wednesday on a wave of angst after President Obama predicted that tax hikes on the middle class could create another recession.Stock of Lionsgate and AMC Networks, which rallied after stellar earnings last week, and CBS, the most exposed to advertising, were the hardest hit. Hollywood majors mostly fell in line with the overall market. Netflix, its own animal, bucked the downtrend, rising 0.22% to $79.78. At his first press conference since winning re-election, Obama warned markets and political rivals of the dire consequences of tumbling off a so-called fiscal cliff — automatic tax hikes and spending cuts that will kick in by year end if the budget isn’t balanced by a separate deal before. “We could go back into recession. It would be a bad thing,” he said. His comments, coming on top of major jitters over Europe’s economy, knocked the Dow Jones Industrial Average down by a hefty 185 points or 1.2%. The IMF and European Union failed Wednesday to agree on long-term budget goals for Greece, which is waiting for aid payments to avoid slipping into bankruptcy, and coordinated workers’ strikes paralyzed parts of southern Europe. Media companies generally beat estimates for the September quarter, but some, such as Discovery, noted softness in Western Europe. Bertelsmann and RTL said this week that the region’s economic woes would weigh on earnings this year. While the Euro-crisis isn’t new, it was eclipsed in people’s minds by other issues during the run-up to presidential elections. “It clearly has people worried. (Especially) if you’re a global advertiser,” said Evercore Partners’ media analyst Alan Gould. He’s not running to change his models yet. Resurgent automakers have fueled an advertising recovery at media congloms this year, which was still holding true in earnings calls as recently as last week, he noted. Viacom will be the final media company to report, on Thursday morning. “Generally (automakers) have seen European sales bad and U.S. sales and advertising strong,” Gould said. Stateside, most pundits expect Obama and Congress to reach a deal before the fiscal cliff triggers across-the-board tax increases Jan. 1. They see his comments as negotiation. The president wants to focus tax increases on the wealthiest 2%. An agreement may not come until the last minute, however, so anxiety is ramping up as the deadline approaches. Among big cap showbiz stocks: Walt Disney fell 1.63% Wednesday to close at $47.18. Time Warner eased 1.14% to $44.10. Viacom was off 1.54% at $48.71. News Corp. drooped 2.32% to $23.97. CBS fell 3% to $33.34. AMC Networks dipped 2.92% to $49.24. Lionsgate was down 3.71% at $15.32.