MarketView for February 8

Summary

A thinly traded session on Wednesday had the major equity indexes virtually unchanged for a second day in a row as the world awaits a decision, yay or nay, by Greece with regard to its accepting tough reforms in exchange for a bailout critical to avoiding a chaotic default. Greek party leaders gathered on Wednesday to agree to reforms demanded by the European Union and the International Monetary Fund after delays.

However, European Central Bank policymakers were still divided on what contribution the bank could make to a restructuring of Greece's sovereign debt. The ECB has ruled out joining private creditors in voluntarily accepting a reduction in the value of the Greek bonds it holds.

Nonetheless, an underlying floor of confidence has kept the Dow Jones Industrial Average near an almost four-year high notched on Tuesday, though trading has been quiet since last week's stellar employment report. The S&P and Nasdaq are both up 0.3 percent so far this week while the Dow is essentially unchanged. Yet, keep in mind that the Dow on Tuesday marked its highest close since May 2008; stocks have rallied from late last year on central bank action and signs of an improving economy.

Furthermore, the Dow has gained 21 percent since early October and has retraced over 80 percent of its bear market slide from 2007 to early 2009. The blue-chip index is now about 10 percent away from the all-time high it hit in October 2007, while the S&P and Nasdaq are both on track for a sixth week of gains.

The speed and magnitude of the gains have some suggesting a pullback could be imminent. While major indexes are slightly higher for the week, the CBOE Volatility index, which is considered a gauge of investor fear and generally moves inversely to the S&P, has spiked 6.3 percent.

Nonetheless, several of Wall Street’s well known major players endorsed the idea that equities are currently the place to be. For example, Laurence Fink, chief executive of BlackRock, the world's largest money manager, told Bloomberg Television that investors should be 100 percent in stocks.

That followed bullish comments from the staff of renowned market bear Nouriel Roubini. Gina Sanchez, Roubini's director of equity and allocation strategy, who told CNBC that the rally "has some legs."

Looking at some individual names, Disney ended the day up 0.7 percent to $41.27, a day after it reported earnings that exceeded expectations. Cisco, another Dow component and a bellwether for the networking industry, rose 2.4 percent to close at $20.93 in extended trading after reporting adjusted second-quarter earnings that exceeded expectations.

However the news was not too good as far as Groupon was concerned. Groupon, the largest daily deal company, fell 7.6 percent to $22.70 after the bell after it unexpectedly posted an adjusted quarterly loss, even as revenue almost tripled from the prior year.

Polo Ralph Lauren was up 9.2 percent to $171.49 after the clothing maker reported better-than-expected results for the holiday quarter and raised its margin forecast.

Energy shares were the biggest decliners, as Brent and U.S. crude oil futures pared gains after a report showed a build-up in domestic crude inventories. Exxon Mobil was one of the day’s largest losers on the Dow, falling 0.6 percent to $85.32.

Volume was light, with about 6.97 billion share changing hands on the three major equity exchanges, well below last year's daily average of 7.84 billion shares.

Cisco Outlook Improving

Cisco Systems promised further revenue growth after its second quarter results exceeded Street estimates, thanks to a restructuring that led to a dividend increase. The company, a sector bellwether because of its global scale and diverse client base, provided guidance of 5 to 7 percent growth in fiscal third-quarter revenue.

That translates into a sales outlook of $11.4 billion to $11.6 billion, matching or slightly exceeding Wall Street's average forecast of $11.46 billion. Also included was a forecast gross margins of 61.5 to 62 percent in the fiscal third quarter ending April.

Cisco's core business is routers and switches, which direct Internet traffic, but the company has also focused on data centers, enabling and providing cloud computing technology and video platforms.

Revenues increased 10.6 percent from the year-ago quarter to $11.5 billion. Net income grew to $2.2 billion, or 40 cents per share, from $1.5 billion, or 27 cents share, a year earlier. Excluding one-time items, earnings were 47 cents per share, exceeding the average estimate of 43 cents per share, as compiled by Thomson Reuters I/B/E/S.

Cisco said on Wednesday it plans to pay a quarterly dividend of $0.08 per common share, up 2 cents from the previous quarter. "Our operational focus continues to yield positive results - we hit our billion dollar expense reduction a quarter early," Chief Executive John Chambers said in a statement on Wednesday.

Cisco last year scaled back on consumer businesses and laid-off thousands of workers in a sweeping 4-month overhaul, aiming to cut expenses by $1 billion.