For those of you who would prefer to listen:
Market volatility was definitely the theme this week. After reaching fresh all-time highs for months, the Bull Market hit the brakes. The AI-trade stalled. Friday was a wild one. Stocks gapped down at the open, building off Thursday’s decline. The Volatility Index spiked, reflecting newfound fear. Weak hands were dumping stocks. Those are the ones generally late to the party. Strong-handed investors were tight gripped and dip buyers jumped back in. It’s said that corrections send stocks back to their rightful owners.
Earnings Season is coming to a close. It’s been a strong showing for Corporate America. 461 of the 500 S&P companies, accounting for over 90% of the Market index, have reported. Expectations were high. The results were even higher. 82% of the companies beat Street estimates. That’s the best showing since the Spring of 2021. Importantly, 76% have beaten on revenues. It’s really impressive. As 2025 nears the end, the focus has transitioned to 2026.
The Market is about expectations. It’s not about good versus bad. It’s about better or worse. Expectations get priced in. Stocks rally in anticipation. There’s been a bit of a sell-the-news in place. Keep in mind, the Stock Market was at all-time highs just a fortnight ago. For you Dow watchers, the 48K was eclipsed earlier in the week. On Wednesday, it hit an all-time high. The Dow went below 47K Friday morning. That was a pretty big move for the historic index of 30. It went into the weekend back above.
There’s an old saying: As goes Disney, so goes the country. It still seems to hold water as a gauge of American economic activity. The Walt Disney Company reported earnings this week. There was a lot to unpack to learn about the state of the union. I find it far more useful than listening to Congress. And that’s when they’re in session.
With signs throughout the Economy showing a Consumer slowdown, Disney continues to see strong traffic. Travel has been a constant since Covid. It still is. Disney’s Experiences Business line reflects it. That’s theme parks and cruises, which account for over half the company’s revenue. Traffic at Disney World, in Orlando, was down from a year ago. International visitors were noticeably fewer. That’s been a trend across the country. But those who came spent more. The company reported that spending per person increased by 5% at Disney World in Orlando. Bookings were up 3%. Its international theme parks saw a 10% pop in revenue during the quarter. Disney Paris was the driver there. The strength looks sustainable. Cruise ships are already selling out for 2026. They’re also increasing capacity. Captain Mickey plans to launch an Asian-ported cruise for the first time next Spring.
Here’s another common theme: Traditional media keeps struggling. Disney’s Entertainment business was a laggard. Simply put, it’s the 20th century platforms that are sucking wind while companies keep building out the 21st century model. People continue to move away from traditional television, opting for streaming. What’s more, fewer and fewer go to the movies. 2025 is tracking to be the worst year for the box office in 3 decades. With customized content available anytime, anywhere, going to the movies or watching television at home is losing its audience. I guess that’s so 20th century. I kind of like it though. But the Digital Age is certainly heading in a different direction. People are watching stuff. They’re watching a ton of stuff. They’re just doing it in a different way. Hollywood keeps getting disrupted. Realistically, that’s nothing new.
Cable subscribers across the country keep cutting the cord. While Walt Disney is struggling in linear television, the company is succeeding in streaming. Disney+ now has over 130 Million subscribers, with total streaming subscribers nearing 200 Million. It’s still a distant second to Netflix’s 300 Million customers. Competition is fierce. Also important, Disney was also able to raise prices. Disney’s streaming business is now generating over $1 Billion in profits this year. 3 years ago, it was losing $4 Billion. The massive investment is paying off. Not every organization has the pricing power of Disney.
Sports remain strong and the NFL is king. The new ESPN+ has been a big hit. Monday Night Football has seen an 8% increase in viewership across all platforms this year. Live sports are the differentiator today when everything else is available on demand. But not everyone has been able to get it. Disney’s television stations have been absent from YouTube TV all month. That’s the ABC network as well as the ESPN stations plus the Disney Channel among others. In the heart of football season, it’s been very noticeable. But both companies seem to be locked-in with their disagreements. No surprise, Disney wants to charge more and Alphabet, which owns YouTube, wants to pay less. It’s quite a duel between a Hollywood empire and a Silicon Valley titan. There are no signs of either company backing down. Of course it’s the viewers who always lose.
Politics are everywhere these days. You don’t need me to remind you of that. The Walt Disney Company seems to get caught in the crossfire time and again. The company benefited from the flood of political ads ahead of the recent election. But it was a material drop compared to last year’s Presidential election campaign which saw record spend. Next year’s midterms will likely bring another boom of those political ads in every medium. I can already sense the enthusiasm. Disney will definitely be a beneficiary. A firestorm occurred during the quarter with the pulling of the Late Night show with Jimmy Kimmel following the Charlie Kirk assassination. Feelings were fiery on both sides of the aisles. Subscribers quit. Advertisers pulled their spots. It was terrible, all the way around. And it seemed to capture the heat of the moment in America.
The Walt Disney Corporation has a succession problem. CEO Bob Iger plans to step down at the end of next year. It’s not clear who will take his place. He already had to return after the prior succession plan failed. It’s such an important issue for any organization. Strong and trusted leadership is essential. Messaging is everything. The Walt Disney Company has evolved over the decades, starting with a hand-drawn mouse in 1928. The company has navigated over nine decades with multiple leaders who left their mark with innovation. Disney has been king on the big screen. It was an early adopter of VHS tapes and DVD’s. It built magic kingdoms and takes us to galaxies far away.
Disney is an American icon and whoever leads it in the next stage of this 21st century will have big shoes to fill. But how cool is that opportunity? The company is on firm footing presently. Management sees double-digit earnings growth the next 2 years. The Board just raised the dividend by a whopping 50% and doubled its stock buyback program. That’s confidence in the future. Management said Disney is heading into 2026 with momentum. That’s important.
Back to the Market:
The corrective price action burned off quite a bit of the excesses built up. Bubbles have been deflated. Fear finally gripped the Market with the VIX decisively punching through 20. The widely watched 50-day moving average on the S&P got taken out Friday morning. That’s roughly the 6700. It didn’t stay down there long. Within an hour of the open, stocks launched a comeback. The S&P went into the weekend near breakeven on the day. The Tech-heavy NAS was a little green. The Blue-Chip Dow was a little red. The closing prices did not tell the full story.
There was a 130-point swing, from low to high, on the S&P Friday. That’s like a 1,000-point move on the Dow. It’s a rare occurrence. Mike Harris and I were chatting about the price action this morning with great interest. It’s either the end of this healthy corrective price action, setting up for a seasonal rally into the Holidays or perhaps the beginning of something new. Of course, you never know until you’re in it. It’s our sense that the corrective price action was a reality check. The AI-trade was showing some bubble-like characteristics. Investor enthusiasm in the space was frothy. Corrections are sort of like a fastball under the chin. The pitcher needs to keep the hitter honest. Overconfidence tends to have hitters leaning too far over home plate. The pitcher owns the plate. When it comes to investing, the Market determines price. It sure has a way of humbling.
It’s been quite a year for investors. After a spectacular run since Spring, stocks were more than overdue for a breather. What’s more, it’s looking less likely that the Fed cuts again in December. The chance of a rate cut is now less than a coin flip. The Market had been pricing in a near 100% probability a month ago. It’s caused some of the turbulence. There’s been a lot of activity beneath the surface too. Leadership has rotated. Health Care and Energy have asserted leadership of late, while Tech corrected. Heading into Friday, it was the Dow stocks that took pole position. That’s certainly new. It reversed itself on Friday, but so far November has been a Dow month. We’re watching closely to see what trends stick. We always welcome healthy corrections, despite the pain they bring. For now, that’s what we think this is and still believe the uptrend is in place. Just know, we’re on it.
There’s so much going on these days. I try to cover and make sense of much of it, best I can. Circumstances can be quite confusing. The Market reflects much of it, but always tries to cut through the noise and focus on facts. Planet Earth is a complex place. Nothing is ever perfect. I’m reminded of these wise words from my favorite philosopher Yogi Berra: “If the world were perfect, it wouldn’t be”.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
