If you're one of the 14 people this side of the Ozarks who didn't know that Cisco (CSCO Quote - Cramer on CSCO - Stock Picks) is
reporting Tuesday after the close, consider yourself up to date on the state of the technology sector and the Nasdaq Composite Index. With traders and investors hesitant to get very aggressive in techland ahead of John Chambers' magical model of consistency, it was another day for defensive stocks. Rotation and frustration appear to be the current themes, as the Naz and Dow continue with their divergence.
The Dow's triple-digit advance left it within 35 points of the much-watched 11,000 level, and I expect that we'll continue to see lower-priced and lower-beta stocks outperform for quite some time to come. Of course, periodic bursts of exuberance for New Economy stocks will bubble up periodically, and I wouldn't be surprised to see that happen going into Cisco's conference call at 4:30 p.m.
What to Watch
The keys to watch will be Cisco's enterprise business and, of course, forward guidance.
Visibility is apt to be rather hazy, but the smooth-talking Chambers will probably exude enough confidence with his enchanting drawl to keep analysts from jumping ship. As is the case with most economists and New York
Fed President William McDonough
Monday, things will be looking up in the second half when the economy rebounds. That's the conventional wisdom on the Street of Dreams and among most economists. Longer-term readers of my scribbling know how much I disdain conventional wisdom and despise finding myself in the same camp as a consensus of dismal scientists. So I'm not as optimistic about a quick economic rebound.
The day was also kind to energy investors after
Phillips' (P Quote - Cramer on P - Stock Picks)
deal for
Tosco (TOS Quote - Cramer on TOS - Stock Picks). As is customary, the acquirer's stock was mauled a bit, but with profit margins for refiners expected to expand, analysts are apt to pump up Phillips this morning. As for the techsters, it didn't turn out to be such a bad day after all. Considering the
Semiconductor Industry Association's backtracking on semiconductor sales growth this year, after fourth-quarter sales were down sequentially, which put a big hurt on the
Philadelphia Stock Exchange Semiconductor Index, or SOX, a 17-point decline in the Nasdaq Composite was pretty heroic. I also noticed that
Taiwan Semiconductor (TSM Quote - Cramer on TSM - Stock Picks), which had met expectations,
forecast that its capacity utilization will fall to only 70% after running just about flat-out all last year. The outlook for semis remains very poor and red ink will be running if the economy fails to perk up later in the year.
Conventional wisdom is that once the Fed starts to ease, Wall Street becomes such a magnanimous locale that investors should bring along a wheelbarrow. Just last night, I happened across some comments from a market "guru" who has a book in print to lend credence to his outlook. One of his three reasons for optimism was expressed as, "Now that the Fed is in an easing mode, the market has nowhere to go but up." Hello. Is this the compliance department?
In any event, the folks at
MarketHistory.com took a look back to see what has happened to the stock market when the Fed cut rates in the year after a presidential election. This has occurred only five times in the past: 1937, 1957, 1981 (twice) and in 1985. Over the following 15 weeks, the
S&P 500 was down in every case, except 1957, when it was up 1.2%. The average move down was more than 12%. Something to think about, no?
An End to the Gloom?
While the media have let up a bit on the gloom-and-doom headlines and talking heads since the Fed began easing, I found it quite interesting to see that
Barron's Gene Epstein attributed some of the plunge in consumer sentiment to the media. I had spoken with
Fox News' very savvy Neil Cavuto late last year about my belief that the media were helping to make a recession a
self-fulfilling prophecy in a race for ratings. I had specifically pointed out that Bill O'Reilly's ranting was inflaming economic fear among his considerable audience.
Well, Neil was back on Bill's show again last night, and he also agreed with my position that the media have to shoulder some of the blame for the precipitous drop in consumer confidence. (He doesn't share my belief that a near-term recession is in the cards. I certainly hope that he and Epstein are right, but the debt overhang leads me to believe that they're not.) Maybe the ongoing
Clinton comic tragedy will keep the broader news media otherwise occupied, but I expect that Americans will be hearing more about the economy along the lines of
Newsweek's cover story, "LAID OFF: How Safe is Your Job?"
Not only has corporate and consumer debt risen sharply over the latter part of the boom, the notion that this time really is different permeated the atmosphere. Many proclaimed the end of the business cycle. The economy was expected to continue at full employment with no inflation, and the stock market would continue to move higher until retirement, no matter what your age. The overriding sense of well being and entitlement is apt to make it far more difficult than in the past to regenerate enough confidence to get most folks to borrow and spend at anywhere near previous levels. This is especially true with much higher heating bills this winter, even with a significant tax cut. The average additional $1,600 tax cut expected by the
Bush administration will probably cover higher energy costs and health care inflation -- and little more.
And, so here we await the master of managing expectations, as Chambers' well-chosen words will be scrutinized as closely as the Fed head's. Of course, Cisco is likely to top consensus as it's done for 14 consecutive quarters, but its crystal ball is also apt to have a major impact on the entire tech sector. I wouldn't be so bold as to sell into the announcement, and I'd suggest that traders play it safe by hiding in more defensive names such as
GlaxoSmithKline (GSK Quote - Cramer on GSK - Stock Picks),
Philip Morris (MO Quote - Cramer on MO - Stock Picks) and
Merck (MRK Quote - Cramer on MRK - Stock Picks). Bears should remain in their caves, but a rally Wednesday on a positive response to Cisco's call might be the time to poke a claw out and fade the strength. One might even consider trading the
QQQs (QQQ Quote - Cramer on QQQ - Stock Picks) to the long side late Tuesday afternoon to play with the Cisco call for a very short-term trade with limited risk.
Bill Meehan
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