Why Tomorrow's Cisco Earnings Could Move the Dow

Why Tomorrow's Cisco Earnings Could Move the Dow

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.

The stock market has pulled back from all-time record levels Tuesday as investors look forward to learning more about Federal Reserve chair nominee Janet Yellen and her direction for U.S. monetary policy if confirmed. As of 12:15 p.m. EST, the Dow Jones Industrials were down about 60 points. Yet while third-quarter earnings season has largely run its course, a few stragglers are still left to report, and Cisco Systems will give us the latest on its results tomorrow. Cisco is defying the Dow's drop today, rising 1.5%, and what it says could dramatically affect not just its own stock but the entire technology industry, which in turn has a dramatic impact on the Dow and the stock market more broadly.

Cisco will release its results shortly after the market closes tomorrow. The company will follow up its release with a conference call scheduled to begin at 4:30 p.m. EST.

Like many tech companies, Cisco has struggled recently to broaden its scope and command a greater piece of the information technology industry. Having fallen from grace as the company with the stock market's biggest market capitalization for a brief period at the height of the tech boom in early 2000, Cisco has found that its networking prowess isn't enough to drive further growth at a sufficient rate to satisfy investors. As a result, the company has moved into higher-profile growth opportunities like cloud computing and enterprise management as a complement to its networking services.

Yet Cisco is one among many companies that are trying to do exactly the same thing. Fellow Dow component IBM has sought to ramp up its cloud, mobile, business analytics, and cybersecurity efforts in order to power profits higher, yet it has run into sluggish conditions in former growth markets that have pushed overall revenue downward. The same pressures were arguably responsible for getting Hewlett-Packard kicked out of the Dow, as HP wasn't as quick as IBM to reduce its reliance on hardware sales and therefore got hit harder by the crash in PC demand that accompanied the mobile revolution.

The big wildcard for Cisco will come from CEO John Chambers. In the past, even when Cisco has put up fairly strong numbers, Chambers has sometimes offered less rosy views of Cisco's future prospects, drawing criticism in some corners for his pessimism and its negative impact on the stock.

Cisco remains a vital part of the tech industry, and its reading on the tech industry's health has implications well beyond its own stock. For the Dow, a successful rebound for Cisco could point to a healthier environment for all of the Dow's tech stocks, and technology could help power the stock market to further record runs. Yet a shortfall might well have the opposite impact, especially in light of the drops that IBM and other tech giants have suffered following their lackluster results.

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The article Why Tomorrow's Cisco Earnings Could Move the Dow originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of IBM. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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