Investors focus on the online entertainment issue Netflix

BY  | FROM  | 2015-08-10 14:02

If you needed to pick out one item that affected the market this week it would be the media—not events trumped in news or entertainment, but it was stocks.  By the end of the week, there was more red in Media issues than Joe McCarthy ever saw in Hollywood.  The S&P 500 Media Industry Group declined 6.25% on Wednesday, its worst decline since the August 8, 2011 decline of 7.12% (ending the week off 7.49%, but still up 0.07% year-to-date).  Starting the declines was Walt Disney (DIS), which lowered expectations for cable and lost 8.17% for the day (off 8.88% for the week, but up 16.10% year-to-date), as Disney also pushed the Dow Jones Industrial Average into the red for the day. 

However it was not all Disney, as Viacom (VIAB; off 20.23% for the week) and Time Warner (TWX; off 8.98% for the week) moused in on the game.  What is hurting the cable business is “cord cutting” as on-line services are taking away from cable subscriptions, and cable’s ability to sell packages (of stations) has started to weaken.  Of course, one investor’s flop is another one’s hit, as online entertainment issue Netflix (NFLX) gained 8.08% for the week and is up 153.11% year-to-date—the only issue in the index to have doubled in price so far this year.  Not in media, but sharing the stage was iPhone maker Apple (AAPL), which continues to be under pressure, as it lost 4.77% for the week and is 13.14% off its February 23, 2015, high, and is still up 4.66% year-to-date.  The academy award, however, went to the backdoor supporting staff, which executed twice as many trades on Apple than normal—and got paid by the trade (regardless of the price level).

In economic news, the official Chinese July PMI came in at 50.0, down from June’s 50.2, but the Caixin Chinese PMI came in much lower, at 47.8, down from 49.4 in June (under 50 is considered contraction), which pushed stocks down.  In the U.S., the ISM July Manufacturing Index was released early (at 9:10 a.m., it was scheduled for 10 a.m.), and it came in at a disappointing 52.7, when 53.7was expected.  The June Factory Orders Report came in up 1.8% when a 1.7% gain was expected.  However, the highlight was the monthly employment report (on Friday), which ended mostly as expected, as new jobs came in slightly less than expected (215,000, when 223,000 was expected), the average hourly wage increased 0.2% (as expected), with the average work week up (to 34.6 from 34.5); the participation rate was flat (at 62.6%).  The takeaway was that the report kept the Fed on the path to an expected September interest rate increase. In M&A news, German car makers Audi, BMW, and Mercedes said they would buy HERE, a mapping application and business, from Nokia for USD 2.8 billion. 

Dublin-based Shire PLC (SHPG) offered to buy Baxalta (BXLT; up 12.7% for the week) for USD 30.6 billion in stock, which Baxalta rejected.  Earnings continued to affect the market for the week, with retail not selling as well as expected.  For the week, the index posted a broad 1.25% decline, negating last week’s broad 1.16% gain, which was after the prior week’s 2.21% loss, and that was after the broad 2.41% gain the week before that.  The up one week and down the next was not lost on traders, as the takeaway was a lack of overall leadership, as different types of issues led for short periods of time.  The positive takeaway, which satisfied few, was that the market should be building a base, with the negative takeaway being that the market had no reason to move up.  Year-to-date, the market is up a just 0.91%, with some Bulls saying it was the correction to three strong years of double-digit returns; countering that were the (fewer) Bears, which pointed to low commodity prices and higher P/E ratios. As the weekly roller coaster continued, breadth returned to the red side, changing directions for the fourth consecutive week. 

For the week, 189 issues gained, compared with the prior week’s 353 issues and 116 the week before that.  There were 312 decliners for the week, down from the previous week’s 146 and 386 from the week before that.  Thirteen issues gained 10% or more (six did the prior week), with another 11 issues up at least 5% (43 the previous week).  Three issues fell at least 10% (two did so the week before), with 38 additional issues falling at least 5% (five did the week before).  Nine out of ten sectors posted losses for the week, which was the opposite of last week, when nine of the ten gained (with all ten down the week before that).  Energy did the worst, falling another 3.48%, as oil traded under USD 44 (it was USD 105 at the end of June 2014), with a year-to-date performance off 16.41%.  Consumer discretionary declined 2.41%, pushed down by media-related issues, but remains up 8.33% year-to-date—significantly better than the index. Health care fell 1.66% but remains up 9.83% year-to-date, as it has shaved some of its gains off.  Utilities were the only sector with a gain, up 0.89%, leaving it off 6.22% year-to-date.  Trading volume was mostly flat from last week, as fewer issues released earnings (next week will be even fewer), but media-related issues did trade heavy, with Apple (AAPL) over twice its normal volume.  Trading was 10% higher than the one-year average.  Measurable volatility (the high-over-low price variance) declined to 1.79% from last week’s 2.46%; the one-year weekly average is 2.36%.  The VIX increased to 13.39 from last week’s close of 12.12 (and the prior week’s 13.74), and remained relatively low by historical standards.  Interest rates remained low, with the 10-year U.S. Treasury yield at 2.17%, a tick lower than last week’s 2.18%, and at the same level it was at year-end 2014.  Oil broke under the USD 44 mark, with most expecting it to stay there for the short-term, as supply remains high.  Oil closed at USD 43.75, down from last week’s USD 46.77, which was down from the prior week’s USD 48.07 (and USD 50.78 before that). 

Gold was flat at USD 1,093.30, down from last week’s 1,095.0.  The euro closed down, at 1.0967, from the prior week’s 1.0984 (1.0985 the week before that).  The pound was at 1.5494, down from the previous week’s 1.5622 (1.5510 from the week before that), and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 124.23, which was down from the prior week’s 123.89 (compared to 123.13 the week before that).  Next week will show a slowdown in earnings, as 13 issues, representing 1.7% of the market value, are scheduled to report.  Highlights include Wednesday’s Macy’s (M) and Wednesday’s after-the-close report of Cisco Systems (CSCO).  Retail stocks are expected to remain active due to earnings, as the cable discussion of “cord cutting” continues.  Economic reports will also be light, with productivity, labor costs, and Friday’s PPI as the highlights. 

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