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.
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