Market Talk

Talk about timing. John, George and I were literally standing at the set, talking about Cisco’s earnings, when the first headlines started crossing about Mubarak stepping down. If we’d have taped five minutes earlier, we would’ve missed it, and I’d be cursing up a blue streak.

The market has a lot internally to deal with, but you wonder if the bulls will just grab onto the Mubarak news and force yet another rally.

(Incidentally, holy cow do I look small next to those two guys. Somebody get me an apple box.)

US stocks poised to give some ground early, based on premarket futures, amid a slightly more downbeat mood in markets overseas.

Stocks in Asia mostly lower overnight, with inflation concerns getting some blame, and European markets are lower, weighed on by earnings disappointments.

Cisco’s results and outlook were also a letdown, contributing to a damper mood here in the US. CSCO off 9.6% premarket and set to nick about 16 points off the DJIA. Kraft reports results after the close.

Weekly jobless claims due at 8:30 a.m.; December wholesale trade numbers at 10:00 a.m. US dollar’s stronger, euro pulls back, recently at $1.363.

S&P futures down 7.60, DJ futures down 44. Ten-year note lower, yield at 3.66%.

Weak outlook from Cisco combines with renewed concerns about the sovereign debt situation in Europe to push US stocks lower. For at least today, fundamentals rise above boundless liquidity in terms of influencing stock prices.

Strong day for the dollar, euro sinks to a five-week low. Tech stocks and financials the hardest hit, while energy and materials produce some solid gains.

Considering the stock market’s close correlation to the euro during the past several months, nagging sovereign debt issues in the Euro zone could cause trouble for US stocks.

DJIA falls 73.94 to 11283.10, and Nasdaq Comp loses 23.26 to 2555.52. S&P 500 ends 5.17 lower at 1213.54.

The Dow dropped more than 100 within the first few minutes of trading and has basically lingered around that area all day long. Cisco’s the main driver after the tech bellwether offered a disappointing revenue outlook, citing lower spending from government agencies and weaker orders from U.S. cable operators. Whether this is selloff is a one-time thing or the start of a new trend remains to be seen. Kathleen Madigan, Joe Bel Bruno and I break it all down, and more, on The Markets Hub.

It’s been more or less an easy one-way trade for a few months now, ever since investors realized that the Fed would provide plenty of cheap money to chase after riskier assets. Fundamentals were pushed into the background as the Fed’s m.o. became clear, and stocks, the euro and commodity prices soared as the dollar got hammered.

Cisco’s stock-price dive today, as well as the euro’s spirited retreat this week, serve as stark reminders that fundamental factors — like sales growth and dodgy sovereign debt — still matter.

Certainly, strong corporate earnings have helped stocks, but the growth trend is clearly slowing. Companies have boosted profits mainly by cutting costs, and most of the low-hanging fruit there has been picked. Now, more and more companies are seeing increasing costs as commodities rise (thank you, Fed, for that weak dollar), fewer areas to trim costs, increased competition on pricing and customers who are reluctant to pay more.

Not a recipe for stronger profits ahead, particularly as the US economy remains unsteady, high unemployment is still entrenched and consumer demand is subdued, at best.

Take heed on this day, citizens. QE2 is no elixir for what ails the US economy, and it’s pumping effect on stocks can’t last forever. Eventually it always comes back to expectations for future profit growth.

This may only be brief reacquaintance with the importance of fundamentals on stock prices, but it’s a sobering indication of what may be in store when the refocus becomes more keen. Cisco shares down 15%.

US stocks erase early losses and finish in positive territory despite continuing concerns about euro zone sovereign debt.

DJIA, which fell as much as 92 points, finishes up 10 (0.1%) at 11357, snapping two-day losing streak. S&P 500 rises 5 (0.4%) to 1219 and Nasdaq Comp jumps 16 (0.6%) to 2579.

Better-than-expected jobless claims and a sharp contraction in the US trade deficit did little to fuel stocks as worries across the pond persist. Bond markets in weaker European countries, such as Ireland, Portugal and Greece, were slammed as investors continued to demand higher yields. All this comes ahead of the highly-anticipated G-20 meeting, beginning tonight.

In after-hours trading, Cisco Systems dropped more than 4% despite solid FY1Q results. Dow Jones’ Roger Cheng reports investors were more interested in CEO John Chambers’ comments from the release, in which he said he is seeing capital spending moderate in some areas of the business. Wall Street had expected a more bullish tone after staying cautious with his macro comments last quarter.

It looks like the uncertainty is here to stay for a little while.

- With today marking the anniversary of Lehman’s bankruptcy filing, the trajectory of the stock market during the past two years has been one wild ride. Bespoke Investment Group notes consumer discretionary and technology are the only two sectors trading above pre-Lehman levels. And while financials have rallied 140% off March 2009 bottom, they still need to gain another 43% “before they can put the pain of the financial crisis behind them,” firm says. Overall, S&P 500 remains 12% lower than it was two years ago.

- “Businesses aren’t hiring because of poor sales, period, end of story,” Paul Krugman writes on his blog. “And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.”

- Twitter’s revamped website has one main focus: Encourage users to spend more time on Twitter.com where the company will show more adds, MediaMemo blogger Peter Kafka says. But Twitter executives say the changes reflect how they want the site to be viewed as a “consumption environment.” “Which is another way of saying that Twitter is a media company,” Kafka adds. “It gives you cool stuff to look at, you pay attention to what it shows you, and it rents out some of your attention to advertisers.”

- Facebook and Microsoft (MSFT) are deep in talks about significantly expanding the search relationship the companies have shared for many years, Kara Swisher reports at All Things D. Broader agreement could include Bing mining anonymized data of consumer usage from Facebook’s “Like” buttons. “Such information might yield a treasure trove of insight for both search users and advertisers.

- Cisco (CSCO) announcing it will begin paying a dividend garnered much positive attention, which surprised Chad Brand, founder and president of Peridot Capita, who called it “unimpressive and unimportant.” “For the investment strategists who claim that income-oriented investors will now all of the sudden flock to Cisco shares, they are clearly overstating the situation,” he writes.

- Eli Lilly (LLY) hops into social media pond, launching corporate blog called LillyPad and accompanying Twitter feed. LLY says blog will address public policy issues, corporate responsibility and advocacy efforts. LLY joins other drug makers including J&J (JNJ) and Glaxo (GSK) that have started corporate blogs. Drug companies have approached social media gingerly, though, because they face strict regulations about what they can say about their drugs.

- Google’s (GOOG) long-awaited music service may soon be a reality, reports music website Billboard. Billboard claims GOOG is circulating a proposal to record labels touting an iTunes-esque music service. Key features apparently include a $25-a-year subscription fee, cloud-based storage and a social networking feature. Unlike Apple’s (AAPL) iTunes, which only offers users short previews of tracks prior to purchase, GOOG apparently wants to offer one full-track stream per song for free.

- Mike Shedlock is skeptical of rebounding retail sales. “I don’t buy it. If retail sales were back to within 4.3% of the pre-recession peak, sales tax collections would be back towards the pre-recession peak, if not exceeding the pre-recession peak.”

- Cash for clunkers revisited. And the verdict? It was one big clunker.

- Details emerge of Horace Mann Educators (HMN) CEO’s DUI arrest. “The chief executive of a midsize insurance company who is in a county jail in Florida on drunken driving charges had “difficulty standing,” was “swaying in all directions” and later fell to the ground as police investigated the May 29 car crash that led to his arrest, according to police records,” WSJ reports.

- Cisco (CSCO) reportedly makes an offer to acquire Skype before it completes its IPO, Michael Arrington reports at TechCrunch. He cites one of his “more reliable sources,” but hasn’t been able to confirm rumor. “If true this would be one very big acquisition,” Arrington says, as Skype’s hoping for $5B valuation. “Presumably Cisco would have to bid in that range to make it interesting.” Additionally, he notes Google (GOOG) was considering a bid, but antitrust concerns nixed that plan.

- Intel’s (INTC) deal to buy Infineon’s wireless business for about $1.4B “gives Intel a strong foothold in the market for smartphone chips, netting it a customer list that includes the likes of Research In Motion (RIMM), Samsung, Nokia (NOK) and Apple (AAPL),” Digital Daily blogger John Paczkowski says. “The irony, of course, is that Intel was in something close to this position four years ago, but gave it up by selling off its mobile chip business to Marvell.”

- The answer to a true housing recovery is simple — lower prices, the Pragmatic Capitalism blog says. “It should be plain as day at this juncture that the government cannot fix the housing market with their incessant fidgeting,” blog notes. “The market needs to correct further before reaching a sustainable bottom.”

- Analyst community has turned more bearish than usual, Bloomberg reports. But “as we have noted so many times previously, following the Wall Street crowd of analysts is rarely the way to make money,” Barry Ritholtz writes at The Big Picture. “Ultimately, excess pessimism amongst the analyst crowd may be a bullish contrary signal,” he says. “It should make dedicated bears nervous.”

- Fed Chairman Bernanke has repeatedly overestimated the strength of the recovery, so what’s to say he wasn’t being overly optimistic in last week’s speech, Mark Thoma ponders. “The Fed should drop its relatively rosy forecast for the recovery and take more account of the downside risks.”

- Former labor secretary Robert Reich argues Fed can’t save economy by making money cheaper than it already is. “The sad reality is cheaper money won’t work,” he says on his blog, as individuals still face huge debt loads and small businesses aren’t borrowing because they’re afraid to expand in this uncertain environment. “That leaves large corporations,” Reich adds. “They’ll be happy to borrow more at even lower rates than now…But this big-business borrowing won’t create new jobs.”

- “The bottom line for housing is that the bottom will be long — perhaps very long — and bumpy,” John Curran writes at Time’s Curious Capitalist blog. “What’s more, we haven’t yet seen the legions of Baby Boomers who are planning to unload their McMansions in favor of some cute bungalow by the beach. They, of course, are just waiting for the market to improve.”

- Obama administration says it’s too early to say whether homebuyer tax credit will be revived, but Calculated Risk blogger Bill McBride says that’s a discussion that shouldn’t even be taking place. “The problem in housing is there is too much supply,” he says. “Incentivizing people to buy existing homes just shuffles households around — it does NOT reduce the overall supply unless the buyer is moving out of their parent’s basement.”

- Minyanville’s Todd Harrison still sees S&P 500 headed back down to 860 at some point, but it won’t happen in a straight line. “I still believe we have years to go to flush the system and set a stable foundation for future growth,” he says. “I’m just open-minded that a rally (such as we saw Friday) could litter the landscape with false hope and empty promises before the cumulative comeuppance comes home to roost.”

- WSJ’s Ben Levisohn reports on the diminishing value of the P/E ratio.

That big “August Surprise” people were talking about turns out to be this: the economy is worse off than you thought it was.

US stocks fall — again — as the stock market is really start to get the hang of this slower growth thing.

DJIA loses 59 (0.6%) to 10320, S&P 500 drops 6 (0.5%) to 1084 — below its 50-day moving average — Nasdaq Comp slides 18 (0.8%) to 2190. Weekly jobless claims climb to 484,000, another worrisome sign in what’s been a string of them lately.

Cisco’s cautious tones take a big bite of tech stocks. GM posts its second straight quarterly profit, and is readying itself for an IPO. CEO Ed Whitacre said he’ll step down (but remain chairman.)