The Justice Department's suit against the AT&T's $85 billion merger with Time Warner is not likely to have a broad impact on the stock market, but it could chill activity in the media sector, analysts say.
The companies said they would fight the lawsuit, which is unusual in that it seeks to halt a vertical merger, meaning the businesses do not directly overlap but do complement each other. The Department of Justice will now have to prove that the combination would be harmful.
"It's not totally shocking. It didn't come completely out of left field," said James Paulsen, chief investment strategist at Leuthold Group. "It is odd in the sense for the market to be dealing in deregulatory environment under a Republican administration and under a Republican-controlled Congress to have this come out. It's just a little odd. It makes you wonder where you really are on the regulatory front."
Analysts say the focus on the AT&T, Time Warner deal raises questions about the 21st Century Fox's efforts to sell off its assets, such as its film or television studios. Interested buyers reportedly include Comcast, parent of CNBC, and Disney.
Paulsen said the stock market could respond negatively if it appears that the administration is becoming more aggressive against mergers in general, but for now it's likely to be contained. "This certainly puts a wet blanket over media deals," said Paulsen.
Peter Boockvar, chief market analyst at Lindsey Group, said the market has been ignoring negative news on the deal.
"It's a weird time. I'm of the belief the stock market is not the same discounting mechanism it was," he said. "Unless the worry is smack in the middle of their face they don't care. They are thinking about tax reform and everything else pales in comparison… Even if it's a 2018 passage…they're staring at that 20 percent corporate tax rate and they're drooling."
Paulsen said the DOJ focus on AT&T and Time Warner may be a one off. He said it does raise questions about whether the deal is getting attention because President Donald Trump has said he opposed the deal and because of his sparring on Twitter with Time Warner's cable news network, CNN. As a candidate, Trump said his administration would reject the deal because it put too much power in too few hands.