Thursday, November 14, 2013
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Soft economic numbers out of Europe, Janet Yellen's confirmation
hearing, and weak earnings reports from
) provide the backdrop for today's trading action. It's hard not
to extrapolate the weak Wal-Mart and Cisco results to their
respective industries, even though the issues could very well be
The overall tone emerging from Wal-Mart's release this morning
and Cisco's after the close on Wednesday is broadly weak.
Wal-Mart beat on EPS, missed on revenues, and provided weak
guidance. The retail giant's tepid momentum for the holiday
season is in contrast to what we heard from
) on Wednesday and likely indicative of problems for other
) at the low end of the retail space. Results from
) were also broadly disappointing.
Beyond retail, the unusually weak guidance from Cisco reflects
terribly for global tech capital-spending trends. The company's
problems appeared particularly notable in emerging markets like
China, India, Brazil and Russia.
Q3 GDP data for the Euro-zone runs counter to the overall
positive sentiment about the region's outlook that has been
taking hold lately. Yes, the region's economic growth was
positive, up +0.4% in Q3. But that is down from Q2's +1.2%
GDP growth pace, which came after 6 quarters of back-to-back
negative GDP growth. France's economy contracted, as did Italy's.
Germany's growth was positive (+1.3%) and matched expectations,
but was down sharply from Q2's +2.9% growth pace.
These three economies combined account for roughly two-thirds of
the region's total economic output. There were some encouraging
signs from the region's southern periphery, however, with
economies in Spain and Portugal showing modest positive growth.
The overall picture emerging from today's GDP numbers spotlights
the divergent paths for the European and American economies.
That's the reason why the European Central Bank recently had to
cut interest rates while the U.S. Fed is getting ready to start
tapering its ongoing QE program. Janet Yellen is unlikely to
provide any fresh Taper guidance in her Senate confirmation
hearings today, but the dominant question for investors at
present is whether Taper is a December event or something much
Director of Research