Sector Investing

[ReturntoSender]

From Briefing.com: 4:30 pm : Inspired by a downturn in initial jobless claims and strength in financials, stocks started the session with strong gains, but profit takers stomped out the early advance to send the major indices lower. The selling effort snowballed as disappointing Treasury auction results hit news wires.

Though its stay in positive territory was short-lived, the stock market climbed to an early gain of 1%. The upbeat tone was supported by news that initial jobless claims for the week ending May 2 totaled 601,000, which is less than expected and down from the preceding week. That helped fit the argument that economic conditions are bottoming, even though it doesn't appear that it has become any easier to find a job -- continuing claims climbed to a new record of 6.35 million, which was in-line with expectations.

In other economic news, a preliminary reading of nonfarm productivity showed a 0.8% increase for the first quarter, but that was mostly due to reduced work hours.

Financials lent their support to the stock market's early advance by climbing more than 3.5% higher. However, participants quickly moved against the sector and caused it to close with a 3.5% loss. The swing came as participants prepare for the government's bank stress tests, which are scheduled to be released at 5:00 PM ET. Most of the government's findings have already been leaked, so the announcement shouldn't cause too much of a shock. However, officially announcing the results should help remove an element of uncertainty from the market.

Tech stocks (-3.2%), which represent the largest sector in the S&P 500 by market weight, also traded with material weakness. Despite better-than-expected earnings and an upside revenue outlook from Cisco (CSCO 18.95, -0.66), the company was a primary laggard. It and other large-cap tech holdings dragged the Nasdaq 100 to a 2.4% loss. Meanwhile, semiconductors fell 5.9%.

Without the support of tech stocks and financial stocks, the stock market was unable to resist sellers' efforts. Those efforts intensified as Treasuries fell out of favor following a $14 billion 30-year Bond auction, which failed to offer investors the yield that was desired. The results suggested that investors are less willing to invest in the government's debt at its offered rate. The 30-year Bond shed 89 ticks, which lifted its yield to 4.27%. The benchmark 10-year Note lost 36 ticks, which pushed its yield to 3.31%, a high for this year.

The broad-based selling effort sent shares of retailers 1.3% lower, even though many retailers reported monthly same-store sales results that were generally better than expected. Wal-Mart (WMT 49.89, +0.38) reported that same-store sales increased 5.0% for April, but indicated it will no longer provide monthly sales results going forward. Wal-Mart also issued downside revenue guidance for the first quarter.

There were some areas of strength, however. Consumer staples stocks (+0.4%), utilities (+0.6%), and health care stocks (+2.5%) managed to advance. The outsized gains by health care stocks came with help from managed health care providers (+8.1%).

Trading volume reached its highest level in more than one month with nearly 2 billion shares exchanging hands on the big board.DJ30 -102.43 NASDAQ -42.86 NQ100 -2.4% R2K -2.4% SP400 -2.5% SP500 -12.14 NASDAQ Adv/Vol/Dec 847/2.78 bln/1839 NYSE Adv/Vol/Dec 1063/1.97 bln/2010

4:32PM Multi-Fineline misses by $0.02, misses on revs; guides Q3 revs below consensus (MFLX) : Reports Q2 (Mar) earnings of $0.34 per share, $0.02 worse than the First Call consensus of $0.36; revenues rose 6.2% year/year to $174.1 mln vs the $182.7 mln consensus. Co issues downside guidance for Q3, sees Q3 revs of $160-180 mln vs. $190.73 mln consensus. "The quarter proceeded generally in line with our expectations, as customer orders reflected challenging global economic conditions... From the sales mix perspective, we saw a continuation of the trends we have experienced over the past few quarters, with the majority of our sales consisting of flex assemblies for smartphones and portable consumer electronic devices that continue to experience strong end-user demand."

4:18PM Microchip beats by $0.04, reports revs in-line; guides Q1 EPS above consensus, revs above consensus (MCHP) 22.67 -0.68 : Reports Q4 (Mar) earnings of $0.15 per share, $0.04 better than the First Call consensus of $0.11; revenues fell 33.5% year/year to $173.3 mln vs the $172.1 mln consensus. Co issues upside guidance for Q1, sees EPS of $0.16 vs. $0.14 consensus; sees Q1 revs of $182 mln vs. $178.66 mln consensus.

4:09PM Novatel Wireless beats by $0.03, beats on revs; guides Q2 EPS above consensus, revs above consensus (NVTL) 8.61 +0.86 : Reports Q1 (Mar) loss of $0.08 per share, $0.03 better than the First Call consensus of ($0.11); revenues fell 19.8% year/year to $70.4 mln vs the $66.4 mln consensus. Co issues upside guidance for Q2, sees EPS of ($0.04)-($0.01) vs. ($0.09) consensus; sees Q2 revs of $75-80 vs. $67.23 mln consensus. "First quarter gross margins rebounded significantly to approximately 23% from 12% reported in the fourth quarter of 2008... Based on current order flow, we expect demand to increase in North America for USB products in the second quarter, and we believe that our new next generation product introductions will begin to have a positive impact in upcoming quarters. Additionally, both Verizon Wireless and Telefonica Spain announced their launch of our innovative family of MiFi(TM) products today, and we expect one additional North American carrier launch during the second quarter. MiFi is the industry's first Intelligent Mobile Hotspot, a new category of mobile broadband that creates a personal cloud of high-speed Internet connectivity that can be easily shared between multiple users and Wi-Fi devices."

08:04 am Cisco Systems (CSCO)

Cisco Systems (CSCO 19.61) reported fiscal third quarter earnings that topped Wall Street expectations, sending shares of the tech bellwether nearly 2% higher ahead of the Thursday's opening bell.

Cisco reported fiscal third quarter earnings of $0.30 per share, excluding nonrecurring items, $0.05 better than the First Call consensus of $0.25.

Revenues fell 16.6% year-over-year to $8.16 billion, but were slightly ahead of the $8.07 billion consensus.

Cisco said its cash and cash equivalents and investments were $33.6 billion at the end of the third quarter, compared with $26.2 billion at the end of fiscal 2008.

Cisco provided fiscal fourth quarter revenue guidance on its conference call, saying it expects revenues to slip 17-20% year-over-year. The outlook equates to fourth quarter revenues of between $8.29 billion and $8.6 billion; the First Call consensus stands at $8.26 billion.

"These results demonstrate our ability to drive operational excellence and manage profitability across varying economic cycles," said CEO John Chambers. "We will use this period of market transition to align and optimize resources, make strategic investments, move into market adjacencies and enhance relationships with our customers."