Sun, Aug 09, 2015 - Page 15 News List

US stocks drop on worries over cable business, Apple

AFP, NEW YORK

Earnings season began to wind down this week, leaving behind a cloud of unease over battered cable and media stocks and the big decline in Apple Inc shares. The Dow Jones Industrial Average finished the week down 316.48 points (1.79 percent) at 17,373.38.

The broad-based S&P 500 fell 26.27 (1.25 percent) to 2,077.57, while the tech-rich NASDAQ Composite Index tumbled 84.74 (1.65 percent) to 5,043.54.

US equities were playing defense most of the week, falling four of five days following a plethora of economic and earnings reports that some analysts said suggest the stock market is overvalued.

“Certainly we have a reasonable economic recovery, tepid earnings and revenue growth and a stock market that’s ahead of both and kind of overvalued relative to the fundamentals,” BMO Private Bank chief investment officer Jack Ablin said.

As of Friday, 304 of 447 companies in the S&P 500 had beaten expectations, 51 had met targets and 92 had missed expectations, according to S&P Capital IQ.

However, Ablin rated the period only a “B-” or a”C+” — saying that many prominent companies had failed to meet revenue expectations.

Among that group were Dow member Walt Disney Co and Viacom Inc, both of which suffered massive double-digit declines in their share prices as investors saw signs that a much-feared decline in the cable business has moved closer to reality.

The worry is that increased viewing on smartphones and other gadgets will hammer cable subscriptions and advertising.

Some analysts are also anxious over the 11.6 percent pullback in Apple shares since its July 21 earnings report, in part due to worries that sales will be dented by the slowing Chinese economy.

A decline in Apple shares below its 200-day moving average “may be signaling real trouble ahead,” 24/7 Wall Street said. “Do not forget that the bull market is now nearing six-and-a-half years old.”

However, not all the week’s corporate news led to selling.

Biopharmaceutical company Baxalta Inc was lifted by news that Dublin-based Shire PLC offered to acquire the company for US$30 billion in an effort to build a giant in rare or “orphan” medications.

Baxalta quickly rejected the offer, saying Shire’s bid “significantly undervalues” the company.

Other stocks were lifted by headlines of fresh activist involvement. Baxter International gained on news that Dan Loeb’s hedge fund Third Point took a 7 percent stake in the pharma company. Food giant Mondelez International Inc advanced after Bill Ackman’s Pershing Square Holdings amassed a 7.5 percent stake in the company.

And Carl Icahn reported an 8.2 percent stake in liquefied natural gas producer Cheniere Energy Inc.

Among the week’s most bullish indicators, automakers reported a 5.3 percent rise in US sales in July, lifting the annual rate of US auto sales to 17.55 million, the third month in a row at more than 17 million cars, a torrid pace of sales for the industry.

“Consumers are feeling more affluent, and with more disposable income to invest back into the economy, the auto sector is thriving,” said John Krafcik, president of TrueCar, an automotive pricing and information service.

US service sector growth accelerated sharply last month, pushing the PMI to a record-high level, according to the Institute for Supply Management.

Other US data suggested slightly weaker manufacturing activity and only a modest gain in consumer spending in June.

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