Macy's, Cisco: What their earnings really tell us

Editor's Note: Combining his passions for the markets, humor and food, "What's cookin' with Kenny Polcari" is a blog published twice weekly on With more than 30 years of experience on Wall Street, Polcari provides insight and analysis on the markets as well as a recipe du jour. Buon Appetito!

It was a Macy's Parade on Wednesday—though not the Thanksgiving type—but more of a "Greenwich Village Halloween" kind because the retailer reported quarterly earnings results that disappointed investors. In turn, its stock has lost around 4 percent of its value.

After both sales and profits missed expectations and its full-year earnings forecast was slashed, reaction on Wall Street was immediate: traders and investors headed for the door.

We have been led to believe that the consumer is alive and kicking, but this report indicates otherwise, and considering that Macy's is the country's largest department store chain, the message is one worth considering.

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Yes, analysts will tell us that there is still the back-to-school season, and believe it or not, they are already talking Christmas (for the whole retail sector—I remind you that it is still August and they are forcing the "holidays" down our throats). But these analysts are only looking for job security.

Macy's weakness just highlights—again—what happens when more and more people lose full-time jobs and settle for part-time jobs in their search for income replacement. This report highlights the fact that people have less discretionary money to spend, especially when they find food and energy prices taking a bigger bite out of the family budget.

And after Wednesday's close, Cisco Systems issued a disappointing report and announced the layoff of some 4,000 people, or 5 percent of its workforce. Its stock fell some 10 percent in after-hours trade.

But here's the rub: On Wednesday morning, Macy's stock was up 22 percent year-to-date and Cisco's stock was up 44 percent YTD. So the 4 percent and 10 percent haircut only takes some of the froth out of their YTD performance.

These companies are not circling the drain. What they are doing is repricing for the forward guidance that they offered, and that folks is what the market will also do—once it gets "more forward guidance" from the Federal Reserve regarding its monetary policy.

Add in the producer price index report, an inflation indicator published by the Bureau of Labor Statistics to evaluate wholesale prices in the U.S. economy, which was released Wednesday. It measures the average change in selling prices that domestic producers receive for goods and services over time. It looks at three areas of production: industry based, commodity based and different stages of processing, to give some insight into the costs to produce.

The report came in at 0.0 percent for July versus expectations of 0.3 percent. But further examination reveals something even more interesting: the energy component supposedly fell 0.2 percent in July due mostly to "a 3.9 percent decline in residential gas prices, along with a 0.8 percent drop in gasoline prices."

Hello?! Crude oil rose from $98 to $105 in July, or 7 percent. Gasoline, which was on average $3.49 per gallon on July 4, closed out the month at $3.63 per gallon, or a 4 percent increase. Yes, it was down from the July 20 high of $3.69 per gallon, but this is all SMOKE AND MIRRORS.

And why might this be important to the outlook? Because the Fed has tied tapering to inflation, and as St. Louis Fed President James Bullard said again Wednesday: "Inflation has been running very low. I have been concerned about low inflation. There has not been much indication so far that it has been ticking back up toward target."

Well, of course not if you keep fudging the numbers and I would like to know where exactly do these Fed presidents live that they don't think prices are rising for the basic necessities?

So, as we have been saying, the market has churned here for weeks now. Are we now seeing the "rollover begin"? Up until Wednesday, the S&P has held above the May high of 1,687, offering some comfort to the technicians, but that changed Wednesday afternoon when the S&P broke down below that key level closing at 1,685—and is now at the bottom of the sideways channel. This is a sign of exhaustion and potential weakness.

Also interesting to note is that fact that the weakness on Wednesday was not accompanied by volatility, so it was just a slow deterioration and not the kind of markets that "traders like" because they are trading (buying at support and selling at resistance) versus the longer-term investor that looks for value.

This action should not surprise you as we have been talking about this for a while. Patience is a virtue.

Looking ahead, the next key level really is 1,670. S&P futures Thursday morning appear to want to test that level. Currently, futures are off 7 points at 1,675. My sense is that real buying interest rests at 1,670, so the market should find support, in the event that the momentum sellers kick in, and then expect the buyers to back off and test the will of the trading community.

Chicken Scarpariello

It feels like a game of chicken (and sausage) lately, so let's try the Chicken Scarpariello. This is the classic chicken and sausage dish. There are many ways to make this, so it is about being creative. Remember, as long as you have the basics down you can make it your own by improvising seasonings, etc. Try this one—it is easy and very good. For this you need:

  • Chicken pieces on the bone! Legs and thighs are always best—the dark meat is tender, juicy and moist.
  • Sweet Italian sausage (you can use hot sausage if you prefer),
  • sweet cherry peppers (you can substitute hot if you like),
  • potatoes, garlic, olive oil, salt, pepper, Italian herb seasoning, red wine vinegar, white wine, chicken stock and cut Italian parsley.

Preheat oven to 475 degrees. In a roasting pan, add in the potatoes (you can slice them, quarter them, cube them—your call), season with salt and pepper and some of the Italian herb seasoning, drizzle some olive oil and a bit of chicken stock—toss and roast for 25/35 minutes, stirring occasionally and remove.

Wash the chicken and dry with a paper towel. Season with salt and pepper, and the Italian herb seasoning.

On medium high, heat some olive oil in a large frying pan. When hot, add the chicken pieces skin side down, but do not crowd. Cook the chicken until golden brown, but be careful not to keep turning the pieces—the trick is to let them brown nicely before turning. You should be thinking maybe four to five minutes before turning (but watch—as you do not want it to burn). When browned, remove the chicken and place in the roasting pan with the potatoes arranging nicely.

Next, place the sausages on the grill. The trick is to just get the grilled flavor, stay close so that they do not burn, turning as they cook. When done, remove and slice into bite-size pieces. Add to the roasting pan.

Now, add the chopped garlic to the frying pan and sauté until golden. Do not burn.

Next, add in the sweet cherry peppers—you can cut these in half and remove the seeds. Sauté. Now add in about ¼ cup of the red wine vinegar and allow it to come to a boil, and then scrape the sides of the pan to release any of the browned bits.

When the vinegar is reduced by half, add in the dry white wine—not chardonnay—maybe like ½ cup or so. Bring to a boil and then reduce by half (no longer than four minutes max). (If you want a thick sauce, then feel free to add some flour to thicken it up. I do not think you need it, but that is the beauty of cooking: you choose.)

Now the chicken stock—about one full cup—once it comes to a boil—remove from the heat and pour the whole thing into the roasting pan with the chicken, sausages and potatoes. Place back in the oven and roast. As it is roasting the sauce and all of the parts will blend nicely. You should only need to keep it in the oven for 15/20 minutes. Remove from the oven, toss in the chopped parsley and serve.

This makes a great dish for a summer cookout. Easy to make a lot of it and present it family style on a nice platter—accompany with a large mixed salad and you are good to go.

—By Kenny Polcari, director of NYSE floor operations at O'Neil Securities and a CNBC contributor, often appearing on "Power Lunch." The author is not compensated by CNBC for this or any other written materials found on

About Kenny: Polcari has more than 30 years of experience on Wall Street. Currently director of NYSE floor operations on behalf of O'Neil Securities, he has also worked for Icap Corps and Salomon Brothers. You can follow Kenny on Twitter @kennypolcari and visit him at

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities, Incorporated or its affiliates.