Cisco's steep after hours decline can't help but spill into Thursday morning trading.
Paul Sakuma
A fountain is shown at the entrance to Cisco Systems headquarters in San Jose, California.
The tech bellwether reported better-than-expected earnings of $0.37 per share, below last year's $0.40 per share. But its revenue forecast was lighter than expected, and it was that and margin pressures that investors focused on in late Wednesday trading. The stock was down more than 9 percent. (Get latest after-hours quote here.)
The question is whether Cisco will hit tech broadly or investors will treat it as an isolated story. Nasdaq futures were lower Wednesday evening.
"I think the market's looking for a bit of a breather here," even without Cisco, said John O'Donoghue, who heads Cowen's trading desk.
Any pull back, however, would be relatively small. "Nothing of major consequence..Look at what happened when Egypt blew up. The market was down for one day," he said.
Stocks Wednesday turned in a mixed performance, with the Dow up 6 at 12,239, and the S&P 500 down 3 at 1320. The Nasdaq fell 7 to 2789. If the Dow ends higher again on Thursday, it would be the 9th consecutive daily gain and the longest streak since a 10-day run in November, 1996.
O'Donnell noted that the Dow is now up more than 5.7 percent year-to-date, and he expects to see the market end the year another 10 percent higher. He said the market's orderly climb may have to do with investors putting new money into stock mutual funds. "There's a slow steam higher but on no volume," he said.
Investors Thursday will be watching weekly jobless claims at 8:30 a.m., wholesale inventories at 10 a.m. and the January budget statement at 2 p.m. Earnings reports are expected from Pepsico, Credit Suisse, Philip Morris International, Thomson Reuters, Molson Coors, Noble Energy, Alcatel-Lucent, and International Flavors and Fragrances. After the bell reports are expected from Kraft Foods, Blue Nile, Cephalon and Expedia.
Investors will also watch for any further reaction to the NYSE Euronext/Deutsche Boerse merger talks, announced Wednesday. The deal talks and an announced deal between Toronto's TMX and the LSE sent exchange shares flying on speculation of more consolidation. One of those companies, CBOE, reports earnings early Thursday morning and holds an 8:30 a.m. conference call.
At 1 p.m., the Treasury will auction $16 billion in 30-year bonds. The Treasury Wednesday sold $24 billion in 10-year notes at a yield of 3.665 percent, lower than many analysts expected after the recent run up in yields.
Indirect bidders, which include foreign central banks, bought 71 percent of the auction, the largest percent ever bought by that group. The average has been running at just under 45 percent.
Jefferies Treasury strategist John Spinello said the 10-year's performance should not have a bearing on the outcome of the 30-year auction.
"It was obviously an institution covering a significant short or someone finding 3.66 extraordinarily attractive, which I doubt would be the case. I think it was a short-based play," he said. The 10-year finished the day with a yield of 3.65 percent, after nearing 3.75 Wednesday.
Spinello said Fed Chairman Ben Bernanke did not really deliver anything new in his testimony before Congress Wednesday. Bernanke warned Congress against overly steep budget cuts. He defended the Fed's quantitative easing program and repeated that the rise in commodities prices is being driven by global demand, not the Fed's programs.
After the close, Brian Sack, executive vice president of the New York Fed's Markets Group, spoke in Philadelphia. Like Bernanke, he said the rise in Treasury yields does not appear to reflect inflation concerns but greater optimism about the economic outlook.
Sack also said the bond purchases have had a helpful effect on financial conditions. He also said the Fed has not "lost any momentum" in its preparations to end the easing policy. The Fed's quantitative easing program is expected to end by the end of June. According to Reuters, Sack said 500 firms have registered for the Fed's term deposit facility, and the New York Fed has 58 money market funds ready to serve as counterparties for reverse repurchase agreements.
