Market commentary: Bad day for US equities, led down by a media sector meltdown

Thursday proved to be the worst day of an already unhappy week for US equities that have been declining three out of the last four trading sessions. On the other side of the Atlantic, despite the Euro Stoxx 600 Index losing about 0.8%, European markets contained their declines, with the Dax retreating 0.44%, the Italian FTSE Mib Index losing 0.36% and both Paris and London closing flat on the day.

In the US, the DJIA lost 120.72 points, declining 0.69%, while the S&P 500 lost 0.78%, falling below the closely watched 50-days moving average technical level, and the Nasdaq recording its worst day in over 6 weeks after declining as much as 1.69%.

The major negative catalysts were disappointing quarterly results from major players in the media industry, which reported worse-than-expected declines in revenues, the technology sector and biotechnology sectors which led both the Nasdaq and the S&P 500 in negative territory, overshadowing a daily rally in energy stocks.

The S&P 500’s Health-Care group lost over 2.1%, dragged down by large biotech firms that followed Allergan Plc in the red, after the Actavis’ recently acquired unit received formal notice of a potential investigation opened by the US Justice Department over the firm’s generic drugs’ marketing and pricing practises.

Among the worst performers in the segment were Amgen Inc., which dipped 3.84%, Celgene Corp., which lost 3.52% and Biogen Inc., which dropped 5.61%; these moves left investors guessing whether this was a one-off decline, or the beginning of a prolonged correction in the sector resembling the significant pull back witnessed in the first quarter of 2014.

The technology sector was also down, led lower by disappointing results from Teradata Corp., which lost over 16% after the company cut its profit outlook for the rest of the year. Microsoft Corp., one of the largest component of the Nasdaq Composite Index, was down 2.02%, followed by Saleforce.com Inc., down 2.88%, and Adobe System Incorp., down 1.43%. In contrast, Apple was slightly up 0.22%, after going ex-div on the day, and Google managed to limit its losses to just 0.47%.

The US media sector is currently in the middle of a meltdown, declining heavily for the second consecutive day, after major players such as Viacom Inc. and Twenty-First Century Fox Inc. reported worse-than-expected results and revenues that declined more than analysts had estimated.

This came a day after disappointing results from Walt Disney Co., whose shares tumbled 9.21% on Monday and lost another 1.79% yesterday, breaching the technically significant 10% correction level, which may lure technical investors to buy into the stock which now offers upside potential and a 1.22% dividend yield.

Viacom plunged 13.55%, after losing over 6% on Monday, adding downwards pressure onto a sector already under pressure. Time Warner Cable Inc. closed 0.64% lower, after recovering most of its initial losses, while Twenty-First Century Fox shed 6.4% following a disappointing earnings release, retreating as much as 13% over the last two trading sessions. In contrast, contents giant CBS Corp. posted a 3.63% daily gain, erasing all initial losses and recouping half of the value lost on Monday.

Although the latest results may have caused the market to overreact, turning into an across the board sector selloff, the current pullback may indeed create some interesting entry points into an industry whose stocks have soared 464% since the 2009 equity market crush, and that should still be able to generate healthy free cash flows over the short to medium periods.

This article was issued by Andrew Cassar Torreggiani, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.