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Stocks were hammered after weak Wal-Mart earnings

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Stocks were hammered after weak Wal-Mart earnings

Wal-Mart and Cisco Systems were the driving force behind the weakness in the major averages, as weaker than expected earnings combined with higher treasury yields eroded investor sentiment.  The tail end of the earnings season seems to have disappointed as the decline in consumer confidence has hurt major retailers such as Wal-Mart and Macy’s.

Wal-Mart experience a second consecutive quarter of earnings declines, which put US stock prices on the defensive.  Wal-Mart earned $4.07 billion, or $1.24 per share, in the second quarter, compared with $4.02 billion, or $1.18 per share, a year earlier. Same store sales fell 0.3 percent, compared to a 1% gain expected by economists.  Total revenue increased 2.4 percent to $116.2 billion in the second quarter, below the $118.47 billion analysts expected.

Cisco’s earnings were in line with expectations, but their guidance gave investors pause. Cisco earned 52 cents per share, a penny better than estimates, with net income of $2.8 billion. Revenue climbed 6% from the prior year, coming in at $12.4 billion, in line with estimates. Gross margin may have been one catalyst for the stock’s softness after the results, falling to 59.2% from 60.6% a year earlier. The stock fell in afterhours trading and continued to head lower on Thursday after CEO Chambers said the “mixed and inconsistent” economic recovery is on a trajectory he does not see changing.

The Dow industrials were hammered on the open and continued to move down to support near the 100-day moving average.  A break of this level would likely lead to a test of the 150-day moving average near 14,746.  The RSI is printing near 33, which is on the low end of the neutral range just above oversold trigger level of 30.

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