Evening Market Update

Equity Markets Move Lower As America Salutes Its Veterans

Stocks finished in the red, but off the lowest levels of the day, as the Treasury markets were closed in observance of Veterans Day, and the economic calendar was void of any major releases. Headlines were dominated by steep losses in the tech sector, which moved lower after Dow member Cisco Systems Inc issued a disappointing revenue outlook, although 1Q earnings beat expectations. Meanwhile, fellow Dow component Walt Disney Co. reported 4Q results just before the close that missed on the top- and bottom-lines. Elsewhere on the equity front, Viacom Inc posted better-than-forecasted profits, Level 3 Communications announced that it would be become the primary content delivery provider for Netflix, and FedEx said it expects an 11% increase in holiday shipping traffic.

The Dow Jones Industrial Average fell 74 points (0.7%) to 11,283, the S&P 500 Index lost 5 points (0.4%) to 1,214, and the Nasdaq Composite declined 23 points (0.9%) to 2,556. In moderate volume, 942 million shares were traded on the NYSE and 2.5 billion shares were traded on the Nasdaq. Crude oil fell $0.10 to $87.71 per barrel, wholesale gasoline was flat at $2.24 per gallon, while the Bloomberg gold spot price gained $4.20 to $1,408.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.6% higher at 78.17.

Dow member Cisco Systems Inc. (CSCO $21) finished sharply lower after the networking firm’s CEO offered some cautious commentary, which overshadowed the company’s better-than-forecasted fiscal 1Q results. CSCO’s Chief Executive John Chambers said, “We are obviously not projecting growth as fast as we would like over the next several quarters,” on a conference call with analysts after issuing smaller-than-expected revenue guidance for 2Q and the full-year. The company called the economic environment “challenging,” and it said it has seen capital spending moderate in some areas of its business, with orders from cable operators and state governments down 35% and 25% y/y, respectively. CSCO reported 1Q earnings ex-items of $0.42 per share, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 19% year-over-year (y/y) to $10.75 billion, roughly inline with the Street’s expectations.

Just before the close, fellow Dow component Walt Disney Co. (DIS $36) reported 4Q EPS ex-items of $0.45 on revenue of $9.74 billion, which fell short of the Street’s estimate of $0.46 and $9.95 billion, respectively. Despite the results, Disney CEO Robert Iger said “our brand and franchise portfolio is stronger than ever and we’re confident our global growth strategy positions the company well to thrive in the coming years.” Shares of DIS moved lower.

Viacom Inc. (VIA $45) reported 3Q EPS ex-items of $0.75, compared to the $0.70 that analysts were expecting, with revenues at the media firm increasing 5% y/y to $3.3 billion, inline with what the Street was anticipating. The parent of MTV Networks and Paramount Pictures said solid gains in domestic ad sales in its media networks unit drove its income higher. Shares traded nicely higher.

Level 3 Communications Inc. (LVLT $1) finished sharply higher after the announcement that the company has been selected to serve as a primary content delivery network provider for Netflix Inc. (NFLX $175). LVLT will support the streaming functionality of NFLX and storage for its entire library of content, which will require the company to double its storage capacity and further increase its globally available capacity. NFLX moved lower.

With the holidays approaching, FedEx Corp. (FDX $88) said it expects to handle 223.3 million items between Thanksgiving and Christmas, an 11% increase from last year. Meanwhile, fellow shipper United Parcel Services Inc. (UPS $68) said last month that it expects a 7.5% increase in holiday traffic over last year. Shares of FDX traded lower, while UPS was slightly higher.

Economic docket and Treasury markets take the day off

The Treasury markets are closed today in observance of the Veterans Day holiday and the economic calendar was void of any major releases. Yesterday, the Treasury markets showed some volatility as traders grappled with a disappointing 30-year Treasury auction, the Fed providing details of the first installment of its QE2, in which it will purchase $105 billion in Treasuries this month, and an unscheduled proposal release by President Obama’s bipartisan deficit commission, detailing plans to cut the ballooning US deficit by $3.8 trillion to 2.2% of GDP by 2015. The US dollar also showed volatility to the data and the currency markets have come into focus as of late in light of the additional stimulus efforts by the Fed and festering euro-area debt concerns. The greenback moved higher today versus most major currencies.

Meanwhile, the G-20 meetings are ongoing in Seoul, South Korea, with currency issues at the forefront. Despite concerns about an undervalued Chinese currency, the yuan, also known as the renminbi, China has been able to deflect criticism to the US’s quantitative easing program, which has been weakening the dollar. Brazil has called for a reduction in the dollar’s role in international trade, and China said the U.S. isn't living up to its responsibility as an issuer of a global reserve currency and obligation to stabilize capital markets by pursuing QE2. Divergent economic recoveries have resulted in recent policies moving in different directions.

Little economic news out of Europe, Chinese data mostly positive

The European economic calendar was relatively light with Spain’s 3Q GDP coming in flat quarter-over-quarter (q/q), as expected by economists, after expanding 0.2% q/q in 2Q. Asia/Pacific was more active, as China issued reports that showed the nation’s prices at the consumer and producer level, as well as new yuan loan growth, all came in higher than anticipated, which could force further tightening of policy by the Chinese government. Also, separate reports showed China’s retail sales and industrial production came in below expectations, but both figures still showed solid double-digit growth. Elsewhere, Japan announced a larger-than-forecasted drop in machine orders for September, while Australia’s employment change rose more than expected in October, but a separate report showed the unemployment rate unexpectedly rose.

Consumer confidence reading due out tomorrow

The sole report on tomorrow’s US economic calendar is the November preliminary reading of the University of Michigan Consumer Sentiment Index. Economists are looking for the index to rise to 69.0 from 67.7 in October.

On the international front, multiple European countries will announce 3Q GDP, including France, Germany, Italy and the euro-zone. Other reports due out include U.K. consumer confidence, Indian industrial production and Brazilian retail sales.