Disappointing Cisco Outlook Sinks Stocks

Last updated 4:51 p.m. ET

Stocks tumbled Thursday after a disappointing outlook from Cisco Systems Inc. rattled a market already on edge as an economic summit of world leaders got under way in South Korea.

Global leaders were sharply divided over currency and trade policies heading in to the Group of 20 summit meeting in Korea, and a sense of pessimism was hanging over the start of the meeting of top officials from rich and emerging economies.

The Dow Jones industrial average fell 73.94, or 0.7 percent, to close at 11,283.10, after trading down as much as 126 earlier in the day.

Cisco disappointed investors when it cut its sales forecast for a second quarter in a row, sending its shares down 16.2 percent to $20.52. That dragged down shares of other technology stocks and other Dow components.

"Cisco is clearly a tech benchmark," said Philip Dow, director of equity strategy at RBC Wealth Management. "With a second disappointment in a row, people are questioning if their business model is broken."

The computer network equipment maker said its revenue will rise by less than half of what analysts had predicted for its November-through-January quarter. There are worries that smaller competitors are cutting into Cisco's market share.

Technology shares have been among the best performing in recent months with more companies investing in new technology coming out of the recession. Cisco's cautious forecast puts a damper on expectations for broader growth in the sector in the coming quarters.

The Standard & Poor's 500 index fell 5.17, or 0.4 percent, to 1,213.54.
Volume was a bit lighter than in recent days because of the Veterans' Day holiday. Bond trading is closed for the holiday.

Investors were cautious as global leaders began an economic summit in South Korea, where the U.S. has received a cool reaction from other nations over its economic stimulus plan. China and Germany were critical of the U.S. last week after the Federal Reserve announced a bond-buying program that effectively cut the value of the dollar. In turn, the U.S. has criticized China for holding its currency artificially low.

A weak currency helps a country's exports because they become cheaper to sell overseas. That can lead to big trade imbalances and protectionist reactions from government's trying to keep their own countries' goods from being priced out of the world market.

The dollar gained ground against the euro Thursday, and was little changed against Japan's yen. The Japanese government has flooded currency markets multiple times in recent months with yen to cut the value of the currency as it hovers near a 15-year low against the dollar.

The euro has struggled in recent days because of fresh concerns about government debt problems, particularly in Ireland.

A steadily declining dollar over the past two months has helped funnel money into stocks and commodities as investors seek better returns.

Gold climbed back up over $1400, to end the day at $1408.9, up $9.6.

Falling shares outnumbered gaining ones two to one on the New York Stock Exchange, where volume came to 950 million shares.