Ciscocould put a glow into tech stocks Thursday, but traders say the stock market could again be choppy.
Better-than-expected after hours earnings news from Cisco will compete with a fresh crop of October sales reports from retailers ahead of the opening bell. Those reports are expected to show improvement but are being watched with a view to what chain stores may say about the critical holiday shopping period.
Weekly jobless claims and productivity and costs are also reported at 8:30 a.m. Eastern time.
Stocks Wednesday gave up triple digit gains as the market day came to close. The Dow finished with a 30 point gain at 9802; Nasdaq lost a point at 2055, and the S&P 500 was up 1 point at 1046.
Stocks initially held gains after the Fed's afternoon statement, but the rally faded as financial stocks sold off.
"Welcome to the new paradigm we live in, which is where we take good news and use it as a selling opportunity," said Jefferies managing director Art Hogan.
"You have a lot of investors who had lousy performance in 2008 and had a good performance in 2009 and would rather lock that in," he said.
Cisco reported a 19 percent profit decline, but per share earnings of $0.36 per share were above the $0.31 expected for its fiscal first quarter. CEO John Chambers was upbeat in his comments. He said the company saw a clear tipping point in its fiscal fourth quarter, ending in July, and sees solid signs of an economic recovery.
"He's turned the corner on his optimistic outlook, and I think that helps everybody," said Hogan. Chambers is expected to appear on CNBC at 9:10 a.m.
Fed on Hold
This week's widely anticipated Fed meeting came and went Wednesday, and the Fed's lack of action now puts the focus on next month's meeting. The Fed maintained the language in its statement, including the much debated line that it would hold rates at extremely low levels for an "extended period."
But it also added to that language, providing some criteria for what would make it change its stance. "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," the statement said.
Pimco's senior strategist Tony Crescenzi had predicted the Fed would make such a move. In a note Thursday, he said the Fed has now provided a roadmap by which market players can gauge evolving monetary policy, particularly the Fed's exit strategy.
The dollar Wednesday finished a percent lower against the euro but finished higher against the yen. Long-term Treasurys saw selling, which pushed rates higher. Gold continued to break new ground, rising $2.40 per troy ounce to $1088.70, a new Comex closing high.
"I don't think the Fed offered up anything new on its outlook for rates," said David Gilmore, market strategist at Foreign Exchange Analytics. "It retained the key language. It just added a little context. I don't think it put it into play in December. There's still a great deal of uncertainty about what 2010 looks like."
Of the dollar, he said: "I think it goes lower." He added that the dollar's recent gains were largely technical.
He said the dollar did move lower Wednesday morning in reaction to a report by CNBC's Steve Liesman on "Squawk on the Street," in which he discussed why U.S. officials are not concerned about the dollar's decline. (Please see Liesman's report, "Why US Officials Aren't Worried About Dollar's Fall -- Yet" http://www.cnbc.com/id/33621641)
"The dollar hit a new low after it ran," Gilmore said.
"I think they're not blowing oxygen onto a burning fire. They're watching it go down, and they think it's reasonable and markets are behaving in a rational way."
Gilmore also speculated that U.S. officials were speaking on a background basis ahead of the G-20 meeting in order to send a message to that group. "It's also a message to people in the market that we're not viewing the decline in the market as a sign of some impending disaster," he said.
Currency traders Thursday will be watching rate meetings at the European Central Bank and Bank of England, both ahead of the U.S. open.
What Else to Watch
There is another wave of earnings news expected Thursday. Toyota reports overnight, and Cardinal Health, Cigna, Dr. Pepper Snapple, CVS Caremark, Thomson Reuters, Unilever, Sara Lee, MGM Mirage, Sirius XM, Frontier Oil, and Nasdaq OXM report before the bell. Starbucks and Sunoco are among companies reporting after the close.
Whole Foodsalso reported after the bell Wednesday. Its stock fell after it forecast 2010 earnings below expectations.
Consumer in Chains?
Retail sales for October, including the typically busy Halloween shopping season, are being watched as an early read on whether the consumer will spend this holiday season. October sales are expected to increase by 2 percent, after a 4.1 percent decline last year, according to Thomson Reuters.
"We're looking at comparing same store sales against last year which was pretty much a dive off the cliff," said Erin Armendinger, managing director of Jay H. Baker Retailing Initiative at the University of Pennsylvania's Wharton School. Armendinger said there typically is not really that much correlation between October and sales for the holiday, but both periods should have easy comparisons.
"It'll be flat or up 1 or 2 percent. It's not going to be a great holiday season. Retailers are in a better position than last year," she said.
Armendinger said in the past year stores have been differentiating themselves between those that not only trimmed costs but also merchandised correctly for the new consumer attitude. "I think people have realized it's got to be exactly the right product and the exactly right experience in the stores, and the right style and right amount with the right sales attached to it. It's getting way worse for some companies, and then there are those that have gotten it," she said.
Ralph Lauren and Tiffany are in the latter group. "We know the wheels are moving in the economy again, but unemployment is almost 10 percent. the Dow looks good, so I think luxury will make a little bit faster comeback than 'mass' will. At the high end of the market, it wasn't about not having the money. It was about not spending," she said.
The pickup in retail this year may also have a temporary impact on employment. "Retailers were forced to do really deep layoffs last year, and I think typically in the holiday season, there's as huge seasonal work force, and they'll probably need it this year where as last year they didn't and the actually got rid of full time employees. Everybody is better able to predict the future this year than they were last year," Wharton said.
Thomson Reuters says the best performing group in October is expected to be drug stores, with sales up 3.4 percent, followed by apparel, up 2.7 percent and discount, up 2.2 percent. Department stores are expected to have had flat sales in October, an teen and children's apparel is likely down 3.2 percent.
Some of the better performers should be Costco, up 5.8 percent, TJX, up 10.1 percent, and Kohl's, up 6.2 percent.
Referendum or Not?
Traders said Tuesday's high profile Republican victories -- against N.J. Gov. Jon Corzine and in Virginia's gubernatorial race -- were a referendum against President Obama and Congressional Democrats.
"It's not a vote against Obama health care," said Daniel Clifton, head of policy research at Strategas. "There's something going on in the electorate, and it's hit the breaking point. It's really about jobs and spending."
Clifton said the vote was not directly about the health care proposals, but the vote makes it clear the health care package does need to get smaller and be less costly. "Meaning tax increases are not going to fly in this environment," he said.
"Is this a referendum on Obama? No, this is a referendum on the economy. This isn't about Republican or Democrat...What we've been telling our clients for months is that this is the most severe anti incumbent environment we've ever seen," he said.
Traders though say the market perception was that the Republican victories spell trouble for health care reform. Health care stocks were the market's best performer, bolstered by this belief and also buying in the group spurred by the merger of Schering-Plough into Merck.
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