Cisco earnings, Ackman stake in Nike: Market Domination Overtime

On today's edition of Market Domination Overtime, Hosts Josh Schafer and Julie Hyman analyze the market close and cover some of the biggest stories from the trading day.

Stock market averages (^DJI, ^IXIC, ^GSPC) held on to Wednesday's gains and closed in the green after July's Consumer Price Index (CPI) report indicated easing inflation. Tim Murray, T. Rowe Price Capital Markets strategist of the Multi-Asset division, notes that markets showed little reaction to the CPI data, given its alignment with forecasts. However, he highlights a shift in focus, highlighting that "worries have moved towards the labor market," though enough data will be available before the Fed meeting to assess labor market health.

Cisco Systems (CSCO) reported fiscal fourth quarter results that topped Wall Street estimates on both the top and bottom lines. Adjusted earnings of $0.87 per share came in better than the expected $0.85. Revenue of $13.64 billion also topped the Bloomberg estimate of $13.53 billion. Morningstar Equity Analyst William Kerwin characterizes Cisco Systems' earnings results as "generally positive," highlighting that the company's fiscal 2025 guidance suggests a return to growth, which he views as "positive." Addressing the recently announced job cuts, Kerwin says he's "not overly concerned with it," interpreting the move as a sign of the company's focus on profitability.

July's Consumer Price Index (CPI) saw the cost of shelter increase 0.4% in the month. Meanwhile, mortgage applications surged 16.8% last week from 6.9% the week prior. Mphasis Digital Risk founder and managing director Jeff Taylor explains, "What we saw in the refinance market was the biggest one-week jump in almost two years. And if we look at the broader [mortgage] rate market right now, we're down a full point to 6.5%, down from a high in April of 2024. And as the Fed has talked about over the course of the last couple of weeks, we're looking at potentially one to two rate cuts this year, maybe September, maybe December, maybe a total of 75 basis points."

Shares of Nike (NKE) are rallying in after-hours trading following news that billionaire investor Bill Ackman's Pershing Square Capital Management has taken a new stake in the athletic apparel giant. A 13-F filing revealed that Pershing Square has acquired approximately 3 million shares, valued at around $229 million.

Finally, Josh Schafer and Julie Hyman break down what to watch on Thursday, August 15, from Walmart earnings to the latest reading on mortgage rates.

This post was written by Melanie Riehl

Video transcript

There's the closing bell on Wall Street and now it's market domination over time.

Let's see where the major averages ended the day.

Still had a mixed picture when all was done.

But the NASA finishing almost all the way unchanged.

But let's run through it here.

242 points up for the dow.

That's about two thirds of 1%.

The S and P 500 up about 4/10 as you said earlier, what the best four days of the year.

Yeah, I think if you zoom out to the five day to Julie, we're up almost 5%.

There you go.

And then the NASDAQ actually ticking you slightly into the green here, but still look at the run over the last five days.

Right?

I think a little bit of a breather.

It's never the fun thing to say, but sometimes that is kind of what happens, right.

We had this big bounce off the sell off last week and it makes a little bit of sense for that to be sort of how the market action plays out.

I mean, interesting too to see small caps not participating again today when we're talking about in inflation print that makes almost positive that the fed is going to cut in September, right?

When you think back three weeks ago, we were talking about that and you had the Russell L performing.

That is not the story as investors have become a little bit more concerned about the overall economic.

Yes, it has definitely lost a lot of momentum here.

And as we look at some of the boards here and some of the movers that we have been watching here's a look at the NASDAQ 100.

So a pretty mixed picture here, but you do have the likes of NVIDIA going even as alphabet fell after the report that the justice department might be looking to break it up sectors though pretty broad based gains.

I mean, while Russia Russell 2000 not gaining the idea that rates are going lower seems to be helping the financials here up 1.2%.

So that's been interesting.

And I know Jared likes to look at the, what he calls the leader board here.

Sort of the, the more momentum.

Me, me things, things that might be will lead the market pretty evenly divided here.

The socks down the Philadelphia semiconductor index down a quarter percent.

You got marijuana up there in the corner by umj that ETF but it's interesting to take a scan of some of these guys, notably not a ton of out performance from what we're looking at here.

From spy.

Right.

And normally Jared would call this.

Not that much of a risk on day.

Right.

A lot of these names would be dark green if it felt like it was a risk on.

And 11 more thing that's catching my eye is the XHB, the home builder ETF.

Why?

Because this morning we got a big increase in mortgage applications as we've seen mortgage rates tick down, but shelter inflation was persistent in CPR we're gonna talk much more about housing in just a few minutes.

So consider that a little teaser of that combo.

Yes, we will shelf that for now, Julie but for more on the latest market moves.

Let's welcome in Tim Murray T Rowe price capital market strategist for the Multi asset division.

And I want to start here with just the market action that we saw today, Tim yesterday.

And sort of are we getting to a point?

Do you feel like the market cares a little bit more about labor market data right now than inflation data?

Is that gonna kind of maybe be what's driving the market over the next month, maybe several months here?

Yeah, I I would, I would think that's definitely the case now.

Certainly it helps when the inflation data comes in right in line with expectations.

Um Very interesting to have a day where we have AC P I print and the market just kind of says, ho hum but like I said, that's because it, it came right in line with expectations.

Certainly going forward.

The worries have moved towards the labor market.

And, you know, the great thing about the labor market versus CP I is that you get a lot more data along the way from the labor market.

You've got claims every week.

Uh You've got the jolts data.

You've got the, um, you've got the non farm payrolls, you've got a lot of data points along the way.

Whereas CP I it's kind of like you, you, you get the data all at once, once a month.

Um And Tim, I believe you're in the half a point cut camp for September.

Why is that?

And do you think that, that maybe, you know, to Josh's point is some of the coming labor data gonna confirm that maybe things are teetering a little bit there.

Yeah.

So, so what I would say is so, first of all, relatively low conviction on that, on that call of 50 basis points, it's a guess as much as anything.

But think what you can say is the market, you look at the futures market, the fed funds futures market, it's pricing in about 100 basis points of cuts over the balance of the year.

And while that market isn't always great at telling you what the path is going to be for the next two or three years, it's been pretty accurate, uh, you know, kind of on a three month basis.

So, right now, if it's saying 100 through the end of the year and we've got three meetings left, that means at least one meeting gets a 50 point, uh, cut.

If you think about the three meetings, you know, November, you're going to have the election and they're not going to want to do a big, big move there.

And December is probably a little too long to wait.

So, what's it mean for investors if we don't get those cuts then, right?

If we get maybe three cuts or maybe it's even two cuts, I mean, you could sort of argue that that might happen because labor market data is coming in better than we thought.

And maybe that's good for the economy.

I mean, is it, is it good or bad for stocks if we don't get to that four cut point where they're cutting by 50 at one of these meetings?

I think it would be bad for stocks for sure.

Um I mean, my, my view on what the fed should do is that you've got, they, they, you know, they talk about being data dependent, right?

It makes a lot of sense.

It, it doesn't paint them in the corner when, when they say they're data dependent, but the reality is they need to be forecast dependent.

Their tools work on a la a long and variable lag basis, right?

Um So whatever they're doing now is going to have an impact 12 months down the road, right.

So they need to think about what the data is going to look like 12 months down the road.

And when you look at the labor market data, it's a very clear story.

The level looks fine, the level looks normal, but the trend that we've seen over the past, you know, six months is pretty concerning.

Right.

That, that and that's what happens when you go from this extremely tight level to kind of a normal level.

That's a really ugly, but it's fine if we start to get that to normalize.

And that trend to flatten out from here.

If we let that trend keep going the way it's been going, then that becomes a problem pretty soon.

And that's what this, you know, the triggering of the so told us.

So I think, yeah, if the feds not responding to that trend, that's a reason for concern.

And I think that's how markets would behave.

So Tim put it all together for us.

Are you getting a little more defensive in this environment then?

Yeah, I would, I would say, um, you know, we had the sell off and I would love to say, you know, based on that sell off, suddenly stocks look really attractive from here.

But the reality is it was a healthy sell off because you had a lot of crowded trades that got flushed out.

So that should help with the volatility going forward.

We've kind of seen that this week.

However, when you look at how the market's priced, you look at kind of kind of valuation levels, you look at, uh, earnings expectations from here.

It, it just doesn't look all that attractive from a risk reward standpoint.

And also I think you have to, you have to be somewhat concerned or at least cautious about A I spending going for the trajectory of A I Capex.

It's really been the biggest driver of uh earnings upgrade so far this year.

And I think you have to kind of be worried about how long that can continue.

So Tim, you feel like we're gonna get more cuts to earnings growth projections, earnings estimates for for next year.

Am I hearing that?

Right?

Yeah, I think what you, you just have to look at A I spin and kind of what the trajectory is.

There's, there's two problems there right now.

Number one is just kind of the simple law of large numbers.

When you, when you have as much spending as we had on A I over the past 12 months, it's just gonna be really hard to get that same growth rate for the next 12 months.

So you've got a tough set up as far as comparisons.

And not only that, I think the really kind of the important part and the challenge most challenging part is that A I investing.

So what companies are doing as far as investing in A I infrastructure, the payoff period for that is 23 years down the road.

So that means you're gonna have a period of time where companies have upped their Capex.

They've done the spending, but they don't get the benefit, they don't get the ro i until down the road.

So you've got this kind of like air pocket uh where the spending is up, but you're not necessarily getting the impact of profit margins.

In fact, you're getting the opposite, you're getting margins squeezed.

So I think even though the, the big companies, the hyper scalar are out there saying we're gonna keep spending, we're not gonna pull back on spending at all.

We're gonna keep growing spending.

Um Will they continue to do that as their margins start to get squeezed as free cash flow conversion starts to fall, you know, and especially if prices start to go down.

If the macro continues to look a little bit weaker, that's gonna be a tough environment to go to your investors and say, yep, we're going to keep on plunging more and more Capex, plowing more and more Capex into the balance sheet when we're not yet seeing the impact of margins, Tim, thanks a lot.

Appreciate it.

All right.

Thank you.

We got some earnings rolling out from Cisco and taking a look at the numbers here.

The company coming out with a forecast above estimates, even as it confirms, it is indeed cutting more jobs.

Those are the sort of the two headlines, but let's run through the numbers here.

Fourth quarter adjusted earnings per share, beating the average estimate by two cents uh revenue also coming in ahead of estimates here as is adjusted gross margin for the full year 2025.

The company expecting 55 billion to 56 point $2 billion.

55.67 is what analysts had been anticipating.

And the company says it is indeed going to cut more jobs and it sees pre tax charges of up to a billion dollars as a result of that Julie, I mean, you see company cutting more jobs, you don't normally see that come with a revenue forecast that actually comes in a little bit above expectations.

And you also don't always see that with them maintaining their dividend to two things that immediately stick out to me that are normally good for investors.

So you see maybe they're doing a little bit of right sizing here but not necessarily in overly concerning way, right?

Like you can sometimes look at these releases and you see the job cuts, you see the dividends slashed and you see they're also expecting revenue miss, right?

So just looking sort of at the headlines overall here, there's some good, some bad and maybe there's something that Cisco is working on there that wants investors to sort of stay in the game.

Yeah, and just as I'm looking here at, at the statement in the commentary.

And by the way, as we talk about the expectation that the company is presenting for fiscal 2025 what they just closed out is their fiscal 2024.

Just to be clear there, Chuck Robbins, the CEO saying in the statement, we saw steady customer demand with order growth across the business.

Um and we heard from Scott Heron, the CFO who talks about revenue gross margin and earnings per share being at the high end or above their guidance range.

They, he says we remain laser focused on growth and consistent execution.

So, um for what that's worth, but it does come here with the company beating estimates and the shares getting a pop, it seems like maybe the um expectations going into this were not great.

The shares are down 10% year to date and Cisco has really struggled here to move into its next phase away from hardware, more focusing on software and services.

That's something that Chuck Robbins has really been pushing forward.

All right, Ken, let's break it down some more, right?

For more on Cisco's fourth quarter results, let's get to Morningstar equity analyst.

Will Kerwin will I just want to start with the broad take away from the report here.

What sort of stands out to you from this?

Absolutely.

Uh We saw the results in the report and the guidance is generally positive mostly in line with what we were expecting.

But the fourth quarter results came in just above the top ends of the guidance range.

Guidance was a little bit above our estimates for the first quarter.

So generally positive.

And then I think it's also important to note that the full fiscal year 2025 guidance implies a return to growth which we see as positive for Cisco.

And how about the um announcement of sort of more job cuts here shrinking the size of the company?

Um What do you make of that as we were talking about at the same time that the company's revenue forecast is above estimate.

So they're still growing and they're cutting their job.

The jobs here.

I think how you put it earlier is about how we see it.

We are not overly concerned with it.

It's really a focus for Cisco on profitability, which is one of the things that we like most about the company, we're not concerned about its competitive position.

And again, we like the return to revenue growth that's implied with guidance for the next year.

So, you know, a little bit of fat trimming a little bit of cost cutting but nothing worrisome.

Well, a couple call outs of A I in the release here and I'm curious, just sort of looking across the coverage space, where does Cisco fit into the A I story?

And are they really kind of the true A I play here or are they still building up that part of the business and it's a little bit more.

Wait and see.

We don't think they're a true A I play.

We think they'll have moderate success in A I networking infrastructure.

So this is the equipment that goes into data centers supporting A I models.

We think it'll be a drop in the bucket essentially compared to the rest of Cisco's business.

And we don't expect them to have a particularly strong market there.

We think A I is going to be reserved for higher speed networking leaders like an ERISA networks, even like an NVIDIA with their networking portfolio.

So I guess then where does Cisco sit at this point?

Um in in that sort of tech universe and the networking universe?

What role, how should investors be thinking about the role that it plays?

Cisco continues to be dominant in what we call campus and on premises networks.

So these are slower speeds and office buildings and campuses wi fi things of that nature.

We don't see the company is particularly strong in faster speed, higher performance.

This is like cloud computing or A I what we were just talking about.

But for us, that's OK, Cisco is dominant in its home markets, those campus networks that I just talked about.

And we think that's all you need to see to justify where our fair value estimate was coming into the earnings release today at $50 a share.

I mean, will, how much does that limit future growth though right.

When you think about future growth in the industry, I mean, you just said that they're not a leader in cloud or faster, faster moving network systems or a I, I mean, that seems like more of the hot trade.

When I think when I think about this space does that sort of limit upside, it definitely limits their growth.

You know, we see Cisco as a GDP, maybe GDP plus grower in the low to mid single digits over the long term.

And that reflects the growth of those campus and on premises markets.

So it's not the sexier high flying growth in the double digits that we see from firms that are well exposed to A I but it is still growth and we think concerns over Cisco's demise and and falling into a decline because it can't play into A I as overblown because we still see these home markets even as lower growth, still growth over the long term.

And again, the profitability that Cisco is able to generate from them is really strong.

Well, Ken, thank you so much.

Appreciate it.

Thank you on your mark.

Get set refinance a fall in mortgage rates has sparked a surge in applications from folks looking to lock in lower rates.

We're gonna discuss the state of the housing market on the other side when market domination over time returns.

It's been an eventful week in the housing market.

The latest CP I data showing the shelter index increasing 0.4% and mortgage applications surging to 16.8% in the most recent week here to help us break down what this means for the housing market.

We're bringing in Jeff Taylor, founder of emphasis Digital Risk.

Jeff, I want to start with those mortgage applications from this.

We saw a big jump there and correct me if I'm wrong.

But reading through the data, it seemed like it was largely from a jump in refinancing.

Not necessarily people applying for new mortgages.

I'm, I'm curious what the overall read is there as mortgage rates come down.

Is this a trend do you think is gonna continue?

And is it gonna be dominated by refis for a little while, Josh, thank you so much for having me today.

And yes, you know what we saw in the refinance market was the biggest one week jump uh in almost two years.

And if we look at the broader uh uh rate market right now, we're down on a full point to 6.5 down from a high in April of 2024.

And as the fed has talked about over the course of the last couple of weeks, we're looking at potentially 1 to 2 rate cuts this year, maybe be September, maybe this summer, maybe a total of 75 basis points.

So for the first time in over 2.5 years, I think that we're really starting to hit a a spot here in a period of time where interest rates are going to come back down coupled with affordability getting a little bit better.

Right.

Home price appreciation was 6.1% back in February.

It's about 4.1% this year.

Those things coming together are really going to shape up or it could be a good housing market and it's like the rest of this year and in spring buying season, Jeff, what is the magic number?

You know, when you look at historical trends, at times when mortgage rates have been high, I mean, mortgage rates have not come down very much this cycle around.

But if you're starting from such a high point, what do we typically see?

Is that sort of like, is it a percentage point drop or what are people waiting for?

That's a great question.

And so we recently just committed, uh uh completed our annual uh us market housing survey here at digital risk emphasis.

And what we found was that 48% say that if they get into that 5% rate, they're ready to start buying.

And these people have been on the sideline for a couple of years, you know, that 20% say their swing spot is a little bit higher into the sixties.

So that's a big number.

So I think a lot of people at our survey have been said that really if we get back into the five, we really could see an increase, especially as we head into the spring, the spread of buying season of 2025.

Well, Jeff, you mentioned the Fed and the role it plays here with rates coming lower and we know markets are already expecting rates to come lower.

Right.

And that's sort of, I think what's been bringing mortgage rates down to some extent already.

So, so how does that work once they start cutting, like, is it priced in pre cut and the cut doesn't make that much of a difference or are we going to see mortgage rates start to really fall once that cut starts?

You know, that's a really great point and not everybody knows this.

So what you have basically is the spread that is shrinking, especially in anticipation of the fed cutting rates.

So that mortgage rates will actually move as, as the mortgage M BS market does and it will start to settle down a little bit.

But where you'll see your permanent rate cuts will be obviously when the Fed moves, but the market always moves ahead.

And that's where I think if you look at September through December of this year, you know, you could probably see triple the amount of a refinance volume you have in the previous two years on a monthly basis.

Because ahead of the Fed, the markets will move the N Bs and mortgage rates will come down and you could see something, you know, probably close to 6.16 0.2.

Uh by the end of the year heading into the fives in January, February Jeff, even if we see mortgage rates start to come down and unlock some demand in the housing market, does that mean affordability is going to improve?

Because if I look at shelter costs, for example, in the CP I report today, I'm not terribly encouraged.

Yeah.

So you know, if I look at uh mortgage housing, right?

It's been such a tight market for the last few years that this is the best inventory we've had uh since 27 2019.

And so a couple of data points on that in one of five major housing markets, there are actually housing surpluses.

So like Tampa Austin Sacramento, you're starting to see houses that are on the market versus everything being bid up at, at at as or more, which is what we have been dealing with for a period of time.

The other thing that really factors in to affordability though is insurance and that's the thing where you look like the state of Florida insurance costs have doubled in many instances.

And that's a big driver to the overall housing number that people can afford.

So um those are the things that you're looking at and those are things that take in consideration.

But again, with more inventory that's gonna be better.

The insurance I think really is the wild card that we'll be talking a lot about in, in 2025 Jeff Taylor.

Thank you.

Appreciate it.

Thank you so much for having me.

Shares of Nike are getting a boost.

That's after a 13 f filing from Pershing Square Capital management showed a new stake in the athletic footwear and apparel company.

The size of that stake.

According to the filings here is about 3 million shares or so.

It's only about 1/5 of percent of the shares outstanding.

So it's not a big stake, but it is a stake, right?

And it's worth about $229 million.

There's another new stake on the part of pushing in Brookfield as well, that to relatively small as a tenant of the shares outstanding.

But still interesting to see Bill Ackman's firm making these new moves.

And it's also interesting given the fact that his firm just canceled an IP O of a closed end investment vehicle, I think Julie, what's interesting, this just speaks to the moment it feels like Nike is at right now, right.

Nike stock down almost 30% this year.

It's been a significant wag of the S and P 500 for a little while now, we know there's pressure coming from different areas and you're sort of at this inflection point where you're wondering if they can hold on and basically reinvigorate growth as they're getting pressure from rivals.

To me.

That's a time where someone like Bill Ackman normally comes in.

Right?

He says that he believes in a turnaround story and he buys Nike shares and maybe that's, I, I guess that's the biggest takeaway for me from that is just, it tells us really where Nike is as a company right now, which is not where they were a couple of years ago.

And they're at an inflection point where a lot of people are sort of debating where the company is headed next.

And that's normally when you see someone like Ackman come in.

Right.

And there's also been this in uptick in speculation about what's gonna happen at the top of the company.

Um based on, in part, even though it has nothing to do with Starbucks, but sort of even the concept that a giant company that had performed well for a long time that is now not performing as well that they could change their CEO anybody would change the CEO, I guess little bit of a conversation coming out of Nike's last earnings report because the earnings report did disappoint.

They were not, they were expecting sales growth to decline in 2025 if I'm remembering the exact numbers correctly.

And there was a little bit of discussion of, are they headed in the right direction here because the direction they had gone with that D to C sales right now, they're telling investors, actually, we still want to do a little bit of wholesale and wholesale is helping us.

So people are wondering where overall, the direction is and I did see a little bit of analyst commentary after the earnings call a couple of months ago that did fall a little bit on John.

Right.

It would be a separate filing if Ackman was going to be an activist and it's also, and it's also a small stake.

So not one that typically would be commensurate with an activist stake.

Um but still he is known as an activist in in the past.

So make of that, which will I guess.

All right, it's time now for what to watch.

Thursday, August 15th, starting off on the earnings front will be getting batch of retail earnings tomorrow including the Biggie Walmart plus Ross Tapestry as well.

Parent company of brands like coach and Cap Spade Walmart announcing second quarter results in the morning and analysts expect top line growth in the second quarter and the company's investments in lower prices to resonate with value seeking consumers.

And speaking of the consumer us retail sales data for July coming out in the morning, that number expected to rise 0.4% giving the us more insight in the resiliency of consumer spending and moving over to the Federal Reserve.

We'll hear another round of fed commentary tomorrow from fed presidents, Alberto Malum and Patrick Harker Wall Street will look for any clues from FED officials after the latest round of economic data as the FED deliberates on its next interest rate decision in September and finally new mortgage rates from Freddie Mac due out in the afternoon.

Last week, the 30 year fix dropped to a 15 month low of 6.47%.

As they were just discussing, getting, see the uptick and refi application.

What's well enough to make someone buy?

No, no, you said 3% right.

That do for today's market domination over time.

But don't go anywhere on the other side of the break.

It's asking for a trend I got to cover for the next half hour with the latest and greatest market moving stories.

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