22 February 2020

U.S. Stocks Drop on Media Meltdown

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Stocks slumped on Thursday in a selloff led by shares of media companies, which have reported a flurry of disappointing earnings amid concerns about the shift away from traditional television. A 12% decline in Viacom Inc. dragged down the Nasdaq Composite Index, which was 1.5% lower at 5062. Before the opening bell, the media giant reported a decline in second-quarter profit and revenue, fueling worries that more consumers are cutting the cable cord and turning to the Internet for their viewing.

Shares of Walt Disney Co. tumbled for a second day after Chief Executive Robert Iger late Tuesday noted subscriber losses at ESPN. That again weighed on the Dow Jones Industrial Average, which declined 119 points, or 0.7%, to 17422. The S&P 500 fell 0.7% to 2085. Disney was down 2.5% on Thursday after falling 8.4% Wednesday. 21st Century Fox Inc. declined 6% after lowering its expectations for full-year profit for fiscal 2016.

The media downturn spread to other sectors as hedge fund and mutual fund managers tried to reduce risks after taking hits in their media stocks, traders said. Thursday’s losses come against the backdrop of tepid growth in the U.S. and around the world. Many investors are also concerned that elevated valuations on some stocks aren’t supported by earnings growth. As well, investors are skittish ahead of the July U.S. jobs report, due out Friday, as they try to gauge the path of interest rates in the U.S.

The health of the labor market is a key factor in the Federal Reserve’s decision when to raise rates. The central bank has held interest rates near zero since the financial crisis, fueling a rally in stocks, and some investors are worried about how the market will adjust to slightly higher rates.

Initial jobless claims, a proxy for layoffs, rose by 3,000 to 270,000 in the week ended Aug. 1, the Labor Department said Thursday. Economists had forecast 271,000 new claims. Across the Atlantic, the Bank of England signaled it remains on course to start slowly lifting rates in the U.K. early next year. The U.K.’s FTSE 100 lost 0.1%, while the Stoxx Europe 600 lost 0.8%.

Investors also focused on earnings outside the media sector. Keurig Green Mountain Inc. shares slumped 28% after the company lowered its earnings outlook and reported weak sales. The company best known for its individually brewed coffee pods is preparing to launch a new countertop soda-drink machine. Mondelez International Inc. shares rose 0.6% after activist investor William Ackman revealed a $5.5 billion stake in the company. The activist believes Mondelez has to grow revenues faster and cut costs significantly, or sell itself to a rival, The Wall Street Journal reported.

Click here to access the full article on The Wall Street Journal.

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