By Bob Iger’s return may not boost Disney’s shares as market sends mixed signals to media stocks
This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics. A lethargic start to a typically upbeat Thanksgiving week for stocks, which are in a prolonged pause while consolidating just under the November highs. You can still view the action as a low-drama consolidation of the 15% rally in the S & P 500 off the October low within the broader downtrend, holding right near the midpoint of the post-April range and steady with levels of six months ago — which was before the last 300 basis points of Federal Reserve tightening and the most recent $10 in declines in forward earnings estimates. The market is trying to sniff out an inevitable Fed pause, while also being held in check by broader macro concerns as embodied by a steeply inverted Treasury yield curve. Seasonal patterns are supportive. Sentiment is still a net positive for stocks but less so than a few weeks ago, when fear was rife and positioning was quite defensive. Earnings have been better than feared but spotty. Valuations are less demanding than several months ago, which is probably fair for the average stock but fuller at the index level thanks to still-rich megacaps. Treasurys rising again at the longer end, sinking the yield curve further, while the dollar rebounds a bit — both risk-averse actions. The current economic activity levels are not observably recessionary, but the yield curve and its historical record of preceding recessions is in investors’ head. Note, though, that stocks have already been weaker heading into this inversion than in prior ones since 1989, and even after previous inversions stocks often rose for six-to-12 months before a recession eventually took hold. Many odd currents running through this cycle. Bob Iger returning to Disney is a shocker and says a lot about both the botched succession process before and the tricky strategic spot the company is in now. Communication and execution missteps by Bob Chapek were perhaps too much for the board, and Iger will immediately regain for the company the benefit of the doubt on prioritizing spending/content strategy. But the market itself has sent hot-and-cold signals to media companies over the past two years, whipsawing managements. Here is the enterprise value-to-forward-cash-flow ratios of Disney vs Netflix . See how, by early 2021, they were in near parity at very high levels. This was the market telling the companies to spend heavily to gain streaming subscribers, profits be damned. Then the message shifted to punishing streaming losses. Disney is still generously valued relative to pre-2019 levels (and compared to 7-10x EBITDA multiples at peers Warner Bros Discovery and Paramount). There are no easy answers aside from cost discipline, curation of great franchises and good shareholder communication. Market breadth is soft but not a washout (11/17 NYSE advance/decline ratio). Equal-weight S & P 500 is outperforming, megacaps again dragging (Tesla continues to look quite toppy longer-term and has now just about round-tripped vs. two years ago). VIX is snoozing, near 23, holiday will thin out trading. Jolts are always possible (the initial omicron sell-off was Black Friday last year) but rangebound indexes keeping the hedging demand in check for now.
