Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Following yesterday's Federal Reserve announcement that quantitative easing will not be changed, and the stock market surge that followed, the markets are relatively flat today. As of 12:45 p.m. EDT the Dow Jones Industrial Average (^DJI -0.11%) is down 28 points, or 0.18%, while the S&P 500 is down 0.08% and the NASDAQ is 0.12% higher.
Jobless-claims data and housing-sales numbers were released this morning. After falling to 294,000 claims two weeks ago, claims rose 15,000 to hit 309,000 for the week ending Sept. 14. However, this should not be seen as a terrible sign for the economy, as California and Nevada had problems reporting their data two weeks ago because of a computer glitch. The two states have indicated that they have a backlog of new claims that may take another few weeks to fully work through. It may be this time next month before we know the actual weekly claims number, which is one reason many economists stress the importance of the more stable four-week moving average. That average sits at 314,750, which is 7,000 lower than last week's revised four-week average of 321,750.
As for the housing data, the National Association of Realtors reported this morning that existing-home sales increased by 1.7% in August to an annual rate of 5.48 million homes. Economists had been expecting the annual rate to hit 5.25 million units sold, so the report was a welcome surprise. Some believe the August jump came because buyers, who had been sitting on the fence, finally took the plunge before interest rates moved any higher. Rates hit a low of 3.35% on a fixed 30-year mortgage in May but have climbed to 4.5% in recent days. The good news is that since the Federal Reserve decided not to taper QE this month, rates may finally hold at their current levels for a few weeks, which would give other potential buyers the opportunity to get into a home at what is still historically a low interest rate.
Corporate news
Yesterday after the markets closed, McDonald's (MCD -0.05%) announced that its board of directors had declared a quarterly cash dividend of $0.81 per share. While the move keeps McDonald's in the good graces of dividend investors and maintains its status as a dividend aristocrat (any company that has increased its dividend payment for at least the past 25 years; McDonald's has increased its dividend every year since it began paying one in 1976), the increase only represents a 5% bump from what the company previously paid. For a stalwart and slower-growing company like McDonald's, to keep investors happy the company needs to make large dividend payments that grow at a healthy double-digit rate each and every year. McDonald's 5% increase clearly falls short of that, which is likely one reason shares are down 0.9% today.
Both Walt Disney (DIS 0.18%) and Cisco (CSCO 0.06%) were hit with downgrades today. Disney's rating changed from "overweight" to "equal weight" at Morgan Stanley, while Cisco was slapped with an "underperform" rating by Credit Suisse. Morgan Stanley feels too much of Disney's potential future growth is tied to "creative success," which the firm believes is much too difficult to predict. Speaking of which, Disney recently changed its release date for the film The Good Dinosaur, which is the next Pixar film set to hit theaters. It had originally been scheduled to release in 2014 but has now been pushed back to November 2015. This will break Pixar's eight-year streak of annual film releases.
As for Cisco, Credit Suisse analyst Kulbinder Garcha believes software-defined networking will threaten the profitability of Cisco's business. SDN is a lower-margin proposition that Cisco will have to adopt in order to stay relevant with the market's needs, and that will lower sales of switches and routers, which come with much higher margins. Credit Suisse is also negative on other networking companies, as it feels the software-defined networking trend will hurt all IT-networking-focused players.
