Thursday was the Dow Jones industrial average’s 11th-worst day this year, and it came about because the Federal Reserve could taper its bond-buying program sooner than we think.
One of the main drivers of the Dow this year has been the Fed’s long-term asset purchase program, where it buys $85 billion worth of bonds every month to keep the economy growing.
The Dow dropped 152 points Thursday after closing at an all-time high of 15,746.88 Nov. 6. A solid jobs report Friday kept a lid on the slide, and the market was up again when statistics showed that the U.S. economy grew faster than expected.
The better-than-expected economic growth has been a downer for the stock market, because it means that the Federal Reserve is likely to end its asset purchases sooner.
However, there are other legitimate reasons for concern in the weeks ahead. Congress has begun budget talks, and investors should expect plenty of vitriol before legislators make any progress.
It is hard to argue the market’s primary trend is anything but bullish, so probably the best advice for an investor is to consider whether stocks have outrun their value.
Much depends on bond yields. How much will they rise when the Federal Reserve stops buying Treasury and mortgage bonds with newly created dollars? Watch for a switch where investors sell their utilities and buy bonds because the return could be greater.
Two Town Crier “50” stocks reported their quarterly results last week.
• Symantec Corp. (SYMC; $23.25) posted mixed second-quarter results in October, with revenues at approximately $1.64 billion, slightly below the $1.69 billion guidance. The company reduced its sales force and further split it in two groups as a new license team and a renewal team. The reduction resulted in a 31 percent decline in license renewals and a 4 percent drop in Symantec’s overall revenues. As a result, Symantec lowered its fiscal revenue forecast from a growth of 0-2 percent to a decline of 3-4 percent.
When President and CEO Stephen M. Bennett took the podium at the recent director’s meeting, his first comment was that the September quarter obviously did not meet his expectations.
“We have entered a new era where the physical and digital worlds are converging rapidly,” he said. “It demands an integrated, holistic approach to protecting and managing information and have Symantec take advantage of this massive shift. We are not backing away from our long-term targets of greater than 5 percent growth and better than 30 percent operating margin for the fiscal year ’15 to fiscal year ’17 time frame.”
Bennett concluded that for the December 2013 quarter, the company expected revenue to be in the range of $1.63 billion, compared with $1.79 billion in the same period a year ago.
“Our guidance assumes an effective tax rate of 28 percent for the December and March quarters,” he said, adding that as part of Symantec’s capital allocation strategy, the company plans to issue a quarterly cash dividend of 15 cents per share Dec. 18.
The recent analyst history for Symantec is an upgrade to perform or outperform, because its share price is low. The low target price is $18, with a high of $33.
• Fortinet Inc. (FTNT; $19.84) released its third-quarter earnings report several weeks ago, with earnings per share of 7 cents. That was in line with analysts, including a Zacks Consensus Estimate.
Looking ahead, with the fourth-quarter guidance appearing conservative, is now the time to buy Fortinet stock?
Fortinet reported third-quarter billings of $165.2 million, up 14 percent from the year-ago quarter. The improvement was aided by 20.2 percent growth in services revenue and a 10.6 percent increase in product revenues.
The Sunnyvale-based company delivers network security solutions throughout the world. FortiGate services provide physical and virtual appliances that offer a set of security and networking functions that include firewall and antivirus and anti-spam operations.
Fortinet stock’s upgrade and downgrade history was a market perform or hold until May, when several research firms suggested Fortinet as a buy. The low target price is $21, with a high of $30.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.