As Hollywood rolled out Oscar noms, Wall Streeters considered whether to nominate the U.S. economy for its first recession since 1991.
Time Warner, CBS Corp. and Walt Disney Co. hit new 52-week lows on Tuesday but rebounded after a massive, early-morning interest rate cut by the Federal Reserve stunned markets around the world.
The aggressive move provided stocks some relief but also signaled that the central bank fears the country may be slipping into a recession. That’s bad news for showbiz shares, which are heavily dependent on advertising.
Merrill Lynch analyst Jessica Reif Cohen downgraded Disney and CBS, calling them the most vulnerable to an economic downturn. Wall Streeters worried that broad economic jitters could squeeze a sector already challenged by eroding ratings and a complex transition to digital media. Those issues had already slammed media stocks in 2007.
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A bright spot may be the boost to advertising coffers expected from a wide-open presidential race and from the Summer Olympics.
But it may not suffice to keep media stocks afloat considering the industry’s other woes. “Ratings were down even before the writers strike,” said Alan Gould, an analyst with Natixis Bleischroder.
One sign of how rocky things have become: A disgruntled shareholder, Chieftain Capital Management, wants to oust Comcast chairman Brian Roberts, long a darling of Wall Street, from the helm of the company his family founded.
But new management may not be the answer. Time Warner stock has gone nowhere despite the promotion of dynamic, well-respected chief exec Jeffrey Bewkes. The media conglom’s former CEO, current chairman Richard Parsons, asked recently at a conference what he would do if he were Bewkes, apparently said, “If I were Jeff, I would shoot myself.”
In Tuesday’s trading, Time Warner ended down 2.32% at $15.18, well off its low for the session of $14.87. News Corp. was down 7% early on but closed off 1.55% at $19.05; Viacom ended off 1.19% at $38.16; it had fallen 4.6% at its low for the day. And sister company CBS closed down a modest 0.82% at $22.90 after falling nearly 5% in early trading. Disney was down 1.37% at $28.12, off its low for the day of $26.30; Sony, which is dominated by its giant electronics biz, fell 2.68% to close at $50.06. The giant Japanese conglom was down 8% early in the day.
Some Wall Streeters are hoping that most of the negatives surrounding showbiz shares, including a slowing economy, were beat into the stocks last year, so at worst they’ll trade in line with the rest of the market. They could get a mild bump if the writers strike ends.
Addressing its decision to slash interest rates in a statement, the Fed’s Open Market Committee cited “a weakening of the economic outlook and increasing downside risks to growth.” The Fed made the move a week before a regularly scheduled meeting, which is highly unusual.
Media stocks swooned alongside the rest of the market before recovering some ground in one of the most dramatic trading days in recent months. The question on everyone’s lips: Is the U.S. in a recession or not?
Merrill Lynch’s chief North American economic David Rosenberg said yes, the country has entered its first major recession in 16 years. “According to our analysis, this isn’t even a forecast anymore but is a present-day reality,” he wrote.
In tandem, analyst Reif Cohen downgraded Disney and CBS and also lowered her earnings forecasts for News Corp. and Time Warner. Media stocks, she warned, in a note to investors, were decimated by two previous recessions — in 1973 and 1991 — and their recovery tends to lag the overall market by one or two quarters.
While U.S. markets were closed Monday for Martin Luther King Day, exchanges in Europe and Asia were open, and they tanked. That gave investors a whole day to worry and exacerbated fears of a selloff Stateside when the markets open today.