Market Insider

Thursday: Cisco Effect, Toyota Earnings to Dominate Focus

Cisco's better-than-expected earnings could put some life into tech Thursday.

Wall Street
Jaap Steinvoorte

Cisco shares jumped in the after-hours session, after it reported profits of $1.85 billion or $0.32 per share, on better than expected revenues of $9.8 billion. Cisco CEO John Chambers also said the company sees "across-the-board acceleration and sequential improvement" in all areas of its businesses.

Thursday's markets are also watching weekly jobless claims data and productivity and costs, released at 8:30 a.m., as well as factory orders at 10 a.m.

Chain stores report their monthly sales for January throughout the morning. Thomson Reuters forecasts sales gains of 2.5 percent, compared to a decline of 5.7 percent last January. Discount stores are expected to perform best, with a 4.6 percent gain, and teen apparel is likely to continue to fare poorly, with a 0.8 percent decline.

The Dow Wednesday slumped 26 points to 10,270 after moving in a narrow range throughout the day. The S&P 500 lost 6 to 1097. The Nasdaq though edged up just under 1 point to 2190.

"Today is another one of those days when I think Washington had a little bit of impact on the markets," said Jeffrey Kleintop, chief market strategist at LPL Financial.
He pointed to President Obama's comments Wednesday morning before Senate Democrats, where he encouraged them to act on health care and financial regulatory reform.

"The sectors that seem to be down most on the day seem to be more policy related," said Kleintop. The S&P financial sector was down 1.2 percent, while health care  was down 1.2 percent. Tech was the best performer, up 0.3 percent.

Company News

Toyota Motor will also be in focus. Early Thursday, the automaker said its biggest ever safety recall would cost it up to $2 billion this quarter, but raised its outlook for the financial year to March after a forecast-beating third-quarter.

Other companies reporting earnings include Glaxo Smithkline, Royal Dutch Shell, Vodafone, Allergan, Avon Products, Cigna, CME Group, Moody's, MasterCard, Northrop Grumman, Diamond Offshore, Burger King and Starwood Hotels. Pitney Bowes, FMC and Sunoco report after the close.

Companies Reporting Thursday

Comcast CEO Brian Roberts and NBC Universal CEO Jeff Zucker testify before two Congressional panels on Comcast's plans to buy a majority stake in NBC from General Electric . NBC is the parent company of CNBC.

Euro Trashed

There will be an important stream of news out of Europe, when the Bank of England and European Central Bank both hold rate meetings ahead of the U.S. opening bell. ECB President Jean-Claude Trichet is expected to speak after the meeting. Neither bank is expected to change rates, but the Bank of England is being watched to see what it says about continuing quantitative easing.

The euro was initially higher Wednesday after the European Union supported Greece's plan to cut its deficit, but it told Greece to come up with a budget program within a month. The euro, however, quickly wilted as the focus shifted to woes around other sovereign debt, particularly Portugal and Spain.

"I think the euro has a long ways to go down," said Dennis Gartman on "Fast Money. "...That's a problem that's going to get worse and worse. They may resolve Greece, but they're not going to resolve Portugal, Spain, Italy, one after another coming at them."

Moody's Wednesday, in fact, issued a statement saying Spain's Aaa credit rating is not under review for downgrade. Rumors flew in currency and debt markets that the country was about to get a downgrade.

Boris Schlossberg of GFT Forex said the shift in sentiment against the European currency is strong. "Even though the Greece situation is very small in terms of impact on the Euro zone, if they go, there's a huge fear of a domino effect. The Europeans have made an implied agreement they're going to rescue Greece. If so , that means the ECB is going to stay stationary a lot longer than the market expects," he said.

Schlossberg said the dollar has been trading better on stronger U.S. economic news. "The dollar is going to trade more on growth expectations than on risk," he said, pointing to the dollar's move higher on stronger ISM data and the ADP employment report.

Trichet is likely to make it clear in his comments tomorrow that the ECB is nowhere near a tightening stance. "The feeling was the Eurozone was going to be the first to tighten monetary policy versus  the U.S. Now at best, people think it's even money and if jobs start coming in better, the bet is the Fed will be the first to move," said Schlossberg.

Whither Stocks

Kleintop said he thinks the recent bout of selling is shaking out, and stocks could be set to make new highs before heading lower later in the  year. He also says the market's behavior this earnings season could be a replay of last quarter when investors sold on the news before turning around to buy late in the earnings reporting season.

He said two factors are a concern for the market later in the year. One will be "when the Fed finally tells us they're thinking about raising rates and the "extended period" comes to an end, and that could be the middle of March," he said. Many economists think that it will be months after the Fed makes such a comment before it will begin tightening.

The other factor is China, which has been warning banks to tighten lending in an effort to slow its economy. "I don't think they were successful yet. I think ultimately they will be but not until the second half..that's when the global growth story slows down."

Kleintop said he is also watching oil closely. "I think its a really good indicator of what's going on in China...We're back to $77 and we could get back to $80. If it rolls back down, it could be a suggestion that the efforts in China have bee more successful in slowing emerging market demand and if that's the case we want to get more defensive," he said.

He said he would then rotate away from export sensitive sectors like technology and industrials, and move money into utilities and telecom.

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