Last week’s gains put the stock market back on track, prompting a question from investors: Is the stock market correction over?
As of the Town Crier’s press deadline Thursday, the market opened down close to 100 points after disappointing news from Cisco Systems Inc. and weaker-than-expected data on consumer spending and jobless claims. But the outlook turned positive within two hours.
Concerns about the global economy and individual corporate earnings have led the Dow Jones industrial average to its worst start since 2009, but many analysts see the downturn as healthy, given the market’s rapid rise last year.
Wall Street is in the middle of earnings season, and half of the S&P 500 reports have been mixed. Of the companies reporting, many have cut their full-year profit outlook, and only 10 percent have increased it.
Stocks have shrugged off the effects of the lower job growth for January, and earnings reports have been driving recent increases. Federal Reserve Chairwoman Janet Yellen made it clear that she would not make any abrupt changes to monetary policy.
A 5 percent decline in equities is not earth-shattering enough to make investors take drastic action. Investors shouldn’t panic, keeping in mind that most analysts predict a positive year in 2014.
Two Town Crier 50 stocks made headlines recently.
• Cisco Systems Inc. ($22.71; CSCO) released its third-quarter results after the bell Feb. 12, and because they weren’t impressive, investors were looking for more bad news.
When the market opened Thursday, Cisco fell to $21.60 and was poised to weigh on each of the major indexes after the company reported a drop of 6-8 percent in revenue for the current quarter.
The largest maker of networking gear posted fiscal second-quarter results that edged Wall Street analysts’ guesses, citing weak demand in developing countries and ongoing transactions in several product lines.
Revenue for the second quarter fell for the first time since the October 2009 quarter, down $11.2 billion, or 7.8 percent, from the year-earlier quarter, but beat the consensus estimate of $11.02 billion. That amounted to earnings per share of 47 cents.
Q2 product revenue fell 10.7 percent to $8.42 billion, but services revenue rose 2.6 percent to $2.73 billion.
CEO John Chambers told analysts that he expects a 6-8 percent decline in third-quarter revenue, which shook up investors.
Chambers was happy to emphasize the importance of the “architecture” Cisco is putting together, predicting that one or two individual Cisco products would devastate competitors.
The upgrade and downgrade history for Cisco stock from 35 brokers includes recommendations of buy, hold and neutral. The high target price is $30, with a median of $24.50. The dividend yield is 3 percent.
• Apple Inc. ($544.17, AAPL) topped analysts’ estimates for the December quarter, but shares fell on management’s weak outlook. The company earned $14.50 per share as sales climbed 6 percent to $57.59 billion.
Apple sold 19 percent more Macs and 14 percent more iPads than in the previous year, but iPhone sales were up only 7 percent to 51 million units, falling short of analysts’ expectations.
Apple tried to keep pace with demand for the iPhone 5s, while the iPhone 5c is fighting rivals’ cheaper models.
Currently in a $60 billion stock-buyback plan, Apple repurchased $14 billion of stock in the two weeks following its December-quarter profit report.
Analysts’ upgrade and downgrade history for Apple stock has generally been an outperform, buy or hold. Of the 45 analysts reporting, only one suggests a sell. The high target price is $777, with a median of $590.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.