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.
There's not a lot of positive sentiment on the U.S. markets today. The Dow Jones Industrial Average (DJINDICES:^DJI) is down 1.48% late in trading, the S&P 500 (SNPINDEX:^GSPC) is down 1.45%, and the 10-year Treasury rate is even up slightly to 2.75%, which will make mortgage rates rise. Two companies issued disappointing forecasts (more on that below), sparking the sell-off, but let's keep in mind that the market is up 17% so far this year and the market is on track for the least volatile year since 1995, so these big-move days have been rare.
Wal-Mart (NYSE:WMT) and Cisco (NASDAQ:CSCO) are the two companies that set today's slide in motion, and they're down 2.6% and 7.4%, respectively. Wal-Mart's revenue grew 2.3% in the second quarter, and net income rose 1.3%, but the results fell short of estimates, and full-year earnings guidance was lowered to a range of $5.10 to $5.30 per share, $0.10 below the previous estimate.
Cisco actually beat estimates, reporting a 6.2% increase in revenue to $12.4 billion and a 10.6% jump in earnings per share to $0.52. But management announced that it was cutting 4,000 jobs, and the market was spooked by the negative sentiment. There's nothing fundamentally wrong with Cisco; it's just that CEO John Chambers doesn't see growth "at the pace we want." The drop is giving investors an even better deal on shares, which now trade at 10.7 times forward estimates, but if Cisco cuts the legs out from its growth engine, it could undermine its own future.
It's almost as if the market was looking for a reason to sell stocks, regardless of whether they're logical. Cisco isn't going anywhere, and considering the state of the economy, a 6% growth rate isn't all bad. As you can see below, long-term investors in Cisco, Wal-Mart, the Dow, and the S&P 500 have done well this year, so today is all about perspective.
Today's sell-off is no reason to panic. It's just the market finding a reason to sell what have been quite outstanding gains this year.