“Boy, those Cisco earnings are driving tech stocks up huge – just look at my HiDef computer screen”
Dow: 13,250 (+0.65%) S&P 500: 1,416 (+0.71%)
It’s kind of like Revenge of the Nerds, but without the tasteful ’80s clothing – tech stocks, which have struggled as of late, rebounded & surged today. Networking powerhouse Cisco (CSCO) reported better-than-expected earnings & revenues and a 75% increase in its quarterly dividend to 14 cents per share, lifting its peers and the tech-heavy NASDAQ stock index up 1%. On the flip side, Walmart (WMT) lost 3% as sales declined last quarter and Facebook (FB) jumped into the headlines as insiders were finally eligible to sell-off shares. US housing data was mixed and weekly jobless claims edged up slightly from the previous week, but a rise in building permits helped the Dow jump 85 points for its biggest gain in nearly 2 weeks.
July Building Permits rise, but Housing Starts ease
New building permits rose last month higher than expected, a signal of confidence to investors about future construction – after dipping in June, the number of building permits jumped nearly 7% in July. Although the building data helped drive markets up, other econ reports weren’t so perky. Housing starts, on the other hand, pulled the ol’ switcheroo with a reverse performance over the last two months compared to building permits – after advancing in June, construction on new residential buildings slipped 1% in July. Investors focused on the glass-half-full side of the data following recent improvements in home-builder confidence this month. The housing market isn’t anywhere near fixed, but economists believe this summer has started to experience a very modest up-trend.
Flood of new FB shares hit the market, causes 6% stock price dive
There are about 2.5 billion Facebook (FB) shares out there, but only 471 million were issued in the Initial Public Offering (IPO) in May. It’s typical not to withhold the bulk of the shares from the public in an IPO, the world wasn’t ready for all of Facebook. Many shares have a holding period when early investors cannot sell the stock in order to ensure that the owners continue to have the best interest of the company post IPO, and to create scarcity that should keep the stock price up. Think about it – if Mark Zuckerberg had sold his entire 21% stake in FB on Day 1, he would have made ~$20 billion, but then who owns Facebook? Investors need to know that the owners still have a stake in the company so new shares are periodically released to the public market in waves until May of next year (these are the rules – accept them).
Today, another 250 million shares held by early investors (Bono, maybe) were eligible to be sold on the NASDAQ stock exchange (if we were Bono, we’d be tired of holding pieces of paper with “FB common stock” written on them – we’d prefer cash). As FB shares sold-off, the stock dropped 6.2% to an all time low of $19.88. Surely not all new shares were sold to the market today, but just the fact that 251 million shares could have been sold may have been a fear factor that contributed to today’s sell off in the market. The number of FB shares traded today (i.e. the volume) was twice the average since the IPO. Expect a super-sized version of today’s phenomenon on November 14th, when another 1.3 billion shares will be freed up – this is the first day that Zuck will finally be able to cash in on his FB investment.
Tomorrow:
- The preliminary Reuters/University of Michigan Consumer Sentiment poll for August
- The 2nd quarter earnings season dwindles: Footlocker
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