VerySmartInvesting: Markets slip on weaker earnings

Thursday, February 10, 2011

Markets slip on weaker earnings

Dow is getting tired after 8 straight up days. It fell 14, decliners over advancers 3-2 & NAZ was down pennies. Bank stocks were little changed, but the index remains near its short term high.

S&P 500 FINANCIALS INDEX

Value	226.66
Change	-0.10 (-0.0%)

The MLP index was down a fraction in the 369s & has been losing steam in the last week. REITs have been inching up to new highs relative to the last 2½ years. Today the index is up another fraction in the 234s. REITs have been attracting interest following favorable articles about their business improving with lower vacancy rates. Junk bond funds are down ever so slightly. Treasuries were weak again, as shown by the spike up in rates for the 10 year Treasury. Its yield rose 5 basis points to 3.69%

Treasury yields:

U.S. 3-month		0.11%
U.S. 2-year		0.82%
U.S. 10-year		3.69%

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

10-Year Treasury Yield Index --- 2 weeks

Oil fluctuated on the jobless report while gold pulled back, with little going on in these markets.

CLH11.NYM

...Crude Oil Mar 11

...87.08

.....

0.37

(0.4%)

GCG11.CMX

...Gold Feb 11

......1,358.10

...

7.60 ...(0.6%)

Gold Super Cycle Link! Click Here

First-time claims for unemployment insurance fell to the lowest level since Jul 2008 (i.e before the Lehman collapse) last week, showing further strength in the labor market. Applications for benefits decreased 36K to 383K according to the Labor Dept, which compares with a forecast that claims would fall to 410K. The total number of people receiving unemployment insurance fell, while those collecting extended payments increased. The 4-week moving average fell to 415K from 431K in the prior week. The number continuing to collect jobless benefits fell 47K to 3.89M. Figures for continuing claims do not include the number of workers receiving extended benefits under federal programs. Those who’ve used up their traditional benefits & are now collecting emergency & extended payments increased 84K to 4.64M. This data continues encouraging, but effects for the long term unemployed remain dreary.

U.S. Initial Jobless Claims Fell 36,000 to 383,000 Last Week

Photo: Yahoo

The economic recovery seems to be bypassing Cisco (CSCO), a Dow stock, which is facing growing competition. CSCO expects EPS, excluding items, of 35-38¢ in the current qtr, which ends in Apr. But analysts were expecting 40¢. The stock fell 2.86 to the 19s, back where it was the last time it reported disappointing earnings 3 months ago. The company warned late last year that sales to gov customers were dropping off & CEO John Chambers said the trend was continuing as many states are struggling with big budget shortfalls. "The challenges at the state, local and eventually federal level will worsen over the next several quarters," Chambers said. In addition, CSCO saw sales of one of its core products, network switches, decline 7%. Revenue in fiscal Q2, ending Jan 29, rose 6% from a year earlier to $10.4B & EPS of 27¢ was down 18% from the prior year's 32¢. Excluding items & the cost of stock-based compensation, Cisco earned 37¢, 2¢ above the average forecast. Chambers expects revenue for the just-started qtr to rise 4-6% from a year ago, a far cry from last summer, when revenue was rising 27% from the doldrums of the recession & is also lower than the oft-stated long-term growth target of 12-17%. In fiscal Q3, ending in Jul, Chambers expects sales growth to jump back up to 8-11%. "Bottom line: I think we will look back on this period of time and wish we could have avoided it. And yet it will make us stronger in the long run," Chambers said. When CSCO disappoints, it hurts all tech companies.

Cisco Systems Slumps as Profit Margin Falls Short of Analysts' Estimates

Cisco --- 1 year

Photo: Yahoo

PepsiCo (PEP), a Dividend Aristocrat, Q4 EPS fell 5% to 85¢ because of higher costs & then had to cut its earnings forecast on a dim view of the economy. Adjusted earnings came in at $1.05 slightly ahead of expectations of $1.04. Revenue rose 37% to $18.2B, helped by acquiring its 2 biggest bottlers. PEP sold 9% more of its products. In 2010, EPS was $3.91 per share, up from $3.77 in 2009. Revenue rose 34% to $57.8B. CEO Indra Nooyi sounded a cautious note for 2011. She said consumers remain pressured by high unemployment & costs for raw materials are expected to remain high. Competition remains stiff. PEP expects EPS growth of 7-8% in 2011 versus a previous forecast of 10-11%. The stock dropped 1.26 after going nowhere during the last year.

PepsiCo Profit Falls 4.8%; Forecast Trails Analysts' Estimates

PepsiCo --- 2 year

Markets are back in the doldrums. The jobless data was good but earnings reports had a negative tone behind them, especially from CSCO. It isn't the only company having problems selling to state & local govs. Funding problems for states are going to be around all year, a drag on the economic recovery. MLPs are taking a breather after paying their quarterly distributions in the last couple of weeks while REITs are getting warm (hot is an overstatement). Egypt is quieting down, but concerns about Europe debt problems are returning.

Dow Jones Industrials --- 2 weeks