It was an eventful week with the market up more than 1% through the end of Thursday, Sept. 16, 2010. The big winner this week was the Technology sector that was up near 4%, which pushed the NASDAQ up 2.7% through Thursday. We suspect much of the activity was due to Cisco Systems, Inc. (NASDAQ: CSCO) announcing the company will begin paying a dividend. With near $30 billion in cash on their balance sheet, we feel it is about time CEO John Chambers passed along the profits to the shareholders. Cisco has purchased nearly $65 billion in stock shares over the past decade, but the stock price hardly moved. The announcement to begin paying dividends is a welcome change for the shareholders.
Also in Technology, it was reported that Microsoft Corporation (NASDAQ: MSFT) is planning to issue debt to fund dividends and stock buybacks. We feel this could not come at a better time for Microsoft, as the company has been hurting for a while with poor decisions in research and development.
We have noticed an incredible amount of debt issuance across the board. There has been $74 billion in debt issuance month-to-date, and we are on course to have the biggest debt issuance month since the economic collapse of Lehman Brothers. We find this astounding, considering that the average S&P 500 company has about 12% of their value in cash on their balance sheets. We think they are locking-up financing for the long-term, which makes good financial sense for the companies. However it makes us wonder what companies will do with so much cash.
In economic news, industrial production rose for a second straight month, although at a slower pace in August. Excluding automobiles, manufacturing was up 0.5%. With consumer spending weak, manufacturing has been a key support for the economy. Retail sales were also up in August, climbing 0.4% and beating economists’ forecast. Best Buy Company, Inc. (NYSE: BBY) reported a 61% rise in earnings, handily beating expectations. Supposedly the economy is struggling; however, we have seen many Consumer Discretionary companies beat expectations.
The Retail Sales figures and Industrial Production numbers provide us a good indication that third-quarter 2010 gross domestic product (GDP) will surprise many economists. We feel that the second quarter’s downward revised GDP of 1.6% will be the low watermark for the year. We also feel that the fourth quarter will be better. Additionally, the market is up more than 7% month-to-date, despite September being one of the historically weaker months for the market.
Finally, interest rates for the two- three- and five-year maturities were down for the week. The 30-year treasury yield rose to 3.9%, which is well above the low of 2.5% it hit in December 2008.
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