Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
It's going to be a rough day of sailing for the Dow Jones Industrial Average (DJINDICES: ^DJI ) today as investors resume their speculation over the Federal Reserve's next moves. This morning dealt them some juicy new economic data that lend to a prettier picture of the overall economy, and therefore a more probable scenario for the Fed to cut its bond purchases in September. As of 11:45 a.m. EDT, the index is down 173 points with only two components out of the red.
The Fed's stimulus policy has certainly benefited the equities markets as it works to lift the labor market and overall economy. But investors need to remember that the policy won't be ending abruptly, or even all at once. Though the most recent talk has centered around the reduction in bond purchases in September, the 6.5% unemployment rate benchmark for the Fed to change its federal funds rate is still a long way off. The most recent official unemployment rate clocked in at 7.4% -- and largely due to a drop-off in labor force participants, not steady new hiring.
The reports this morning do suggest that the economy is progressing, with new lows in the jobless claims report and a steady increase in the Consumer Price Index. New claims for unemployment benefits fell another 15,000 last week to a seasonally adjusted rate of 320,000 -- the lowest reported level since October 2007. And the rolling four-week average also dropped to a low not seen since the fall of 2007: 332,000. CPI increased by 0.2% in July, following a stronger June increase of 0.5%. The steady increase in CPI has helped assuage some fears of too-low inflation.
The big story
Of the Dow components, Cisco Systems (NASDAQ: CSCO ) is taking a beating this morning after announcing earnings after yesterday's close. Despite the fact that the networking giant met most of Wall Street's expectations, the company's forecast for the remainder of the year was bleak. CEO John Chambers noted that international conditions are weak and a global recovery is happening at an inconsistent pace. With the struggles abroad and uncertain demand for networking products, the company will be cutting 4,000 jobs. Needless to say, investors are not giving the company any leeway this morning and have cut the share price by more than 7% in trading so far.
Retail still struggles
Retailers have struggled to perform lately, with Wal-Mart's (NYSE: WMT ) earnings report showing that consumers still aren't increasing their spending due to pressures from higher payroll taxes and price increases in gasoline and other necessities. The megaretailer halved its forecast of revenue growth for the year as slower store traffic and tightening consumer wallets has cut into sales growth. Wal-Mart's earnings match the struggles seen in Macy's (NYSE: M ) earnings report yesterday, in which the Cincinnati-based chain noted a "softer than anticipated" second-quarter performance.
Consumers tightening their spending is just one more challenge for retailers to contend with, as the retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.