Media stocks get minor taste of Fed rate cut


An unusually hefty though widely expected U.S. Federal Reserve rate cut Tuesday led to the biggest Wall Street rally in five years, but media stocks underperformed.

The S&P 500 leapt 4.2% after Fed chairman Benjamin Bernanke cut its benchmark rate by 75 basis points to its lowest level in three years, though The Hollywood Reporter Showbiz 50 stock index rose less than 4%, with small media companies outperforming their larger brethren.

Topping the Showbiz 50 list of advancers was Cumulus Media, operator of 345 radio stations. The stock rose 15.1% on Tuesday to $6.70, though it's still off 43% from where it traded as recently as July on worries that the radio industry remains challenged.

Movie exhibitor Carmike Cinemas was second on the list, rising 13.7% on Tuesday, a day after reporting a net loss of $127 million in 2007. The stock, though, remains 69% lower compared with where it was in the summer.

Of the top 10 movers in the Showbiz 50, only Yahoo can be considered a large-cap media stock. The remaining top 10 movers have market caps of less than $1 billion, including Live Nation (up 9.6%), Sinclair Broadcast (8.4%), Martha Stewart Living (7.9%), Blockbuster (7.4%), Entercom Communications (7.1%), TiVo (6.9%) and Avid Technology (6.7%).

Of the large media congloms, Disney (up 4.1%) came closest to matching the S&P's gain.

Disney was the 20th-biggest upside mover on the Showbiz 50, while Viacom was 24th (up 3.7%), Time Warner was 29th (up 3.1%), CBS was 30th (up 2.9%), Sony was 38th (up 2.4%) and News Corp. was 39th (up 2.3%).

Only four companies on the Showbiz 50 were down Tuesday: Cablevision, Imax, Liberty Media and Dolby Laboratories.

That media congloms didn't move as dramatically as some other stocks wasn't a surprise given that Tuesday's rally was mostly driven by the financial sector.

"This rally reflects an easing of concern that we would have a financial crisis," said Northlake Capital Management's Steve Birenberg, who specializes in media investments.

"Media stocks are more sensitive to concerns about future economic growth," Birenberg said. "Despite the big rally, those concerns remain and thus concerns about advertising growth remain. After all, the Fed statement today said the risk to growth was to the downside."

The 75 basis points reduction is the latest in a slew of Fed activity this year after a 50-point cut Jan. 30 and the only other 75 basis points cut since at least 1990 on Jan. 22.

With the latest reduction, the Fed has brought interest rates down to 2.25%. Before it started cutting rates in September, they were at 5.25% and during the 2001 recession interest rates fell as low as 1%.

While the run-up in U.S. markets signaled investors' approval, some on Wall Street argued that declining interest rates might not really have had a big influence on the direction of the U.S. economy yet.

"Does it really matter to the economy if the Fed funds rate is at 2.25%, 2% or 2.5% at this point?" Miller Tabak equity strategist Peter Boockvar said.

"Recent information indicates that the outlook for economic activity has weakened further," the Fed said Tuesday. It cited the risk of inflation as a reason for not cutting interest rates even more aggressively.

Paul Bond reported from Los Angeles; Georg Szalai reported from New York.