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Stocks Decline on Cisco Outlook; Energy Rises

Stocks continued to trade lower following disappointing results from Cisco, and as investors weighed the effects of Ireland's debt troubles.

The Dow Jones Industrial Averagefell more than 90 points after a lackluster trading session on Wednesday that ended with all the major indexes eking out gains.

Cisco, Hewlett-Packard and Boeing led the blue-chips lower, while Chevron and Merck and rose.

The S&P 500 fell, while the tech-heavy Nasdaq sank nearly 1.5 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to above 19.

Most key S&P sectors were lower led by technology, financials and industrials. Energy and materials rose.

Cisco shares tumbled about 15 percent after reporting Wednesday that its revenue outlook fell short of Street forecasts. The networking company's profit, however, was better than expected. Nonetheless, the stock was pummeled in after-hours trading, and continued to sink Thursday as several brokerages lowered their ratings and price targets for the stock. The selloff was the biggest for Cisco after an earnings release.

UBS held its "neutral" rating for the stock but called for a major "unexpected downward reset." The concerns stem from Cisco's forecast for weak sales to state and local governments, and weak cable and European spending, UBS said.

Cisco CEO John Chambers said he was even surprisedby the revenue outlook in an interview on CNBC. “We got a couple of air pockets here that surprised us, and I wish we were smarter on that," Chambers said.

While Cisco's poor outlook was pressuring most other technology stocks, the company's views on slowing orders reflect a broader worry that the economy is not as strong as many investors thought and providing a reason for stocks to sink lower overall.

"I do think it’s a general portrayal of the economy as a whole that’s hurting the market," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

There are technical factors as work as well, as the market retrenches after reaching highs for the year. Despite a pullback for much of the week, the S&P 500 continues to trade above 1,198, a key resistance level, meaning the broader upward trend hasn't broken.

"We’re pulling back within the context of a strong uptrend," Pado said.

The tech-heavy Nasdaq was hit especially hard from Cisco's dismal outlook. Despite an upgrade by Morgan Stanley to "overweight" from "equal-weight," Intel fell in the pre-market. Morgan Stanley sees Intel's "Sandy Bridge" semiconductor chips as enabling "the next generation of smaller, optimized PC computing devices."

Meanwhile, Kulicke & Soffa's shares fell nearly 4 percent after the semiconductor equipment maker reported a weak view for the first quarter of 2011, despite soaring profit and revenue in its fiscal fourth quarter.

In contrast, Level 3 Communications soared more than 12 percent after news the company won a multiyear contract with Netflix as a primary content streamer.

The cost of debt in Ireland,meanwhile, continued to soar as the yield spread between 10-year Irish and German bondsreached its widest levels ever. Concerns with Ireland pushed the euro to record lows and the dollar higher.

In further earnings news, Viacom reported better-than-expected quarterly results, citing strong results at its MTV unit.

Shares of Kohl's were slightly lower Thursday after the mid-market retailer reported earnings results in lines with expectations and forecasts same-store-sales would rise between 2 and 4 percent in the fourth quarter. Kohl's plans to open more stores than initially planned in 2011.

Meanwhile, shares of Urban Outfitters declined after the retailer's shares were cut to "hold" from "buy," by Keybanc, while lululemon athletica's shares were flat after a similar downgrade. Chico's shares, however, fell after the brokerage raised the specialty retailer's shares to "buy" from "hold." UBS raised its price target for Chico's to $10 a share from $9.

In Europe, Siemens, the German multinational, proposed a sharp rise in its full-year dividend and raised its 2011 outlook. The company's earnings beat forecasts.

Elsewhere, Wal-Mart is giving a holiday shoppers a break this year by offering free shipping on 60,000 online items through Dec. 20.

Boeing shares continued to weaken on Thursday after leading the Dow lower the previous session following news of troubles with the airline maker's 787 Dreamliner. Boeing has halted future testsof the 787.

Meanwhile, the G20 meeting of world leaders in Seoulfailed to encourage the broader market.

Treasury Secretary Tim Geithner told CNBC the United States would never seek to weaken its currency to gain a competitive advantage. That helped the dollar index slightly, but did little for stocks. Meanwhile, former Federal Reserve chief Allen Greenspan wrote in the Financial Times that the U.S. is pursuing a policy of a weaker dollar and pushing up exchange rates around the world.

Economist Joseph Stiglitz weighed in, saying quantitative easing won't boost the economy, but risks starting trade wars.

European shares were mostly lower as concern over debt in peripheral euro zone countries continued to spook investors. Asian stocks ended mixed with the Nikkei 225 at a 4.5 month high.

Banks, government offices, and the bond market will be closed due to Veterans Day holiday.

On Tap This Week:

THURSDAY: Veterans Day – Bond market closed, stocks and futures markets open, G20 mtg. begins, Earnings from Disney and Nvidia.
FRIDAY: APEC CEO summit, Consumer sentiment, Earnings from DR Horton and JCPenney.

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