Mulling over the next month for stocks in general, the TMT world specifically, and my comm equipment holdings in particular. I expect things to be choppy to nasty through mid-October. Then we probably head upwards as 3q earnings bring decent 4q outlooks. Still in Vermont composing on a cramped keyboard/screen, so apologies for choppiness.
Expect a gov’t shutdown – hurting stocks (especially tech).
- There doesn’t seem to be much point in averting a government shutdown. The House Republican’s wacko wing would just precipitate another crisis over the debt ceiling. Tipping us into chaos earlier gives the (worryingly few) adults in Congress more time to get us through with minimal damage done. Lets not talk about how pathetic all of the above is.
- An October 1 shutdown (followed by a probable debt ceiling dust-up) will hurt confidence and, thus, stocks. It will also threaten expectations for 4q government spending, which is @5%-10% of many tech company’s revenues. So tech will probably take a bigger hit.
- However, most of the drama will be over by mid-October. We either end up at current spending levels or, possibly, a lifting of the sequester-driven 10% cuts. Some House Democrats are already muttering about demanding an end to the sequester in return for helping Boehner avoid a default. And he probably will end up needing their votes.
By then, 3q earnings will be underway. And probably decently upbeat.
- 4Q is generally a good quarter and this year is shaping up with fairly normal seasonality. So the overall tone will probably be reasonably upbeat, especially tech.
- Commentary last quarter was fairly cautious. Obvious the economy is still soggy. But the risk of a shut-down/debt ceiling crisis also didn’t put anyone in the mood to be a hero.
- With the government crisis past, companies will at least have better visibility. Mechanically, US Federal spending YoY comps will start to be less damaging. More important, most companies seem to have set pretty low expectations for year-end. It won’t take much to come in marginally “better.” That is probably enough to get things moving up.
- Cisco, in particular, seems to have under-played its prospects last quarter. With a 2.8% dividend yield and Chambers (hopefully) starting to tee up his exit, there could be a decent run ahead.
- I also like my communications equipment names (CALX, INFN) on seasonality and company-specific trends. Less excited about Enterprise Tech spending RVBD, CSCO) although it should be decent. Juniper is probably pretty dead money until CEO Kevin Johnson’s replacement comes on board although expectations are low enough to offer a potential pop.
I don’t think I’ll trade on any of the above (I just don’t trade much). If you do and make millions on it, send me a six-pack of something decent.
