Cisco stock (Nasdaq: CSCO) plunged 7.17% today, and Wal-Mart (NYSE: WMT) stock 2.6%, after disappointing earnings reports drove investors to sell.
Cisco announced plans to cut 4,000 more jobs (5% of its global workforce); the sales forecast for the quarter came in surprisingly low.
Cisco CEO John Chambers said that while emerging markets grew by 8%, the big emerging markets only grew by 1%. Brazil and Russia were flat, and China was down 6%, causing greater inconsistent growth than in the past.
Meanwhile, Wal-Mart shares are down to $74.41 after its Q2 earnings fell short of Wall Street expectations. The retail giant cited abating international markets, as operating income grew 5.2% in the U.S. but dropped 1.3% internationally.
Cisco and Wal-Mart both pinned their bad performances on emerging market woes, but that's not the real story.
"With regard to the notion that emerging markets are causing this - I'm not so sure that's true," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, a 20-year seasoned market analyst.
Here's why.
What Really Happened with WMT, CSCO
When it comes to Wal-Mart, Fitz-Gerald sees a different force at play:
"Wal-Mart missed by a penny. Blaming emerging markets is an overreaction. The bigger question in my mind is whether Wal-Mart screwed up and overextended itself - their management hasn't exactly been the best over the last two years. So, I'm less inclined to look critically at emerging markets, and more inclined to look at management issues."
Fitz-Gerald does identify one issue for Wal-Mart's international operations...but it applies to all retailers.
"Macy's missed, and Target will probably miss," Fitz-Gerald surmises. "I generally haven't been a fan of retailers for several years now, because I believe the global delivery process is going to be extreme. This is why I've recommended goods and services that are necessities to my Money Map Report subscribers."
Editor's Note: Money Map Report identifies the most important global trends and breakthroughs, bringing readers outstanding profit-making opportunities. From gold and commodities, currencies, and global income plays, you can get ahead of the crowd here...
Similar to Wal-Mart, Fitz-Gerald is looking past emerging markets as the cause of Cisco's bad performance.
"Cisco's sales are, for the most part, long-cycle. I think consumers bought a lot during the downturn, and now they're off-cycle with the quarterly cycle. Generally, that holds true for a lot of the large capital equipment companies."
And there could even be a third force at play to consider before swallowing headlines that point to emerging market woes:
We are in the middle of August, traditionally a low point during the year.
"There's a lot of profit-taking going on right now, and people are simply pulling in their horns. Another couple of days of this, and I may change my opinion; but right now, I'm not concerned," says Fitz-Gerald.
So, we can blame management and the retail game for Wal-Mart's dragging earnings. Cisco might simply be out-of-sync, and the market is generally at a seasonal low point.
At the end of the day, we're still bullish on emerging markets.
"The tide of money continues to flow into emerging markets on a much broader scale. This is a short-term bump - I think emerging markets will continue to be strong for some time to come," says Fitz-Gerald.
Keep an eye on the global economy and score big as Fitz-Gerald reveals shocking numbers about China and tells investors how to take advantage here...
Related Articles:
- Money Morning:
European Stock Market Looks Stronger - But Don't Be Fooled - Money Morning:
These Income Stocks are High Growth in Disguise - Money Morning:
How China's One-Child Policy Will Transform the Future Global Economy - Business Insider:
Cisco CEO Reveals Some Stunning Numbers About The Slowdown Of Big Emerging Markets - The Street:
U.S. Stocks Slump as Cisco, Wal-Mart Continue to Slide
