Not the long awaited correction that many envision, but the two-tier stock market that we have been expecting all along.

Last week’s encouraging jobs report provided some welcome relief to an otherwise softening stock market. First, the BLS estimate of the number of new jobs created in August was revised upward by more than 20%, and the figure for September was a substantial increase over that number. And – for the first time in a long time – the official unemployment rate finally dropped below 6%.

That was enough to stem the tide of falling share prices earlier in the week, some of it the carryover effect from the previous week’s surprise announcement that “bond king” Bill Gross was leaving Pimco for Janus. As a result, all of the major stock market indexes have backed off the highs they hit earlier this year, waiting to see how the economy will perform without the aid of continued Quantitative Easing.

However, the tech-heavy NASDAQ Composite index has held up reasonably well, currently valued less than 3% lower than its recent closing high of 4,592 reach one month ago on September 8^th (unlike the other major indexes which reached their all-time highs this year, the NASDAQ Composite topped out at 5,048 way back in March of 2000 and has never gotten back to that level since).

And why shouldn’t it hold up well? Tech companies are not particularly interest rate sensitive as most of them do not rely on cheap credit to finance their operations. Most of their share buyback programs are paid for with cash reserves, unlike other companies that have been financing them with cheap debt. In fact, many of them hold enormous amounts of cash which would actually benefit them by earning a higher interest rate.

Also, most popular tech gadgets (e.g., smartphones, pads, gaming units, etc.) these days are cheap enough (i.e., less than $500) that they do not need to be purchased using some form of finance, unlike the automobile or housing industries that are much more interest rate sensitive for that reason. And the more expensive hardware products that are usually purchased on credit primarily by business users – the servers, routers, and related ecosystem components – enjoy almost inelastic demand as the cloud proliferates at an expanding rate.

In my opinion we have now entered into the two-tier stock market that we have been predicting all along. To wit, companies and industries that are interest rate sensitive will be more susceptible to selling off, while those with solid revenue models that are not highly leveraged will continue to attract investor capital.

So while the overall impact on the stock market may end up being a wash, or even a mild correction, the specific impact on individual stocks could be quite disparate.  Beginning later this week we will see quarterly earnings reports roll out for the remainder of the month, leaving in their wake a clearer portrait of the stock market winners in the post-QE era.

We expect most, if not all, of our Investments portfolio holdings to be among this new generation of tech sector titans, taking their place in the upper tier of stock market winners. Two of them, Cisco Systems and Intel, are profiled below.

NASDAQ Composite Index:                                                                     

Friday, September 26 = 4,475.62                                        

Year to Date = + 8.0%                                       

Trailing 7 Days = – 0.9%                                    

Trailing 4 Weeks = – 2.2%

Investments Portfolio Update: Cisco Systems
by Rob DeFrancesco

Since 2009, the compound annual growth rate of detected IT security incidents has risen 66% year over year, according to the latest PwC global security survey, which includes information from nearly 10,000 executives and IT directors in 154 countries. And this growth figure is low because it doesn’t take into consideration undetected and unreported attacks.

Seeing the expanded opportunity in enterprise network protection, Cisco Systems (CSCO) is putting more emphasis on its security unit, which in the latest quarter delivered revenue growth of 29%, vs. flat top-line growth. Last month, Cisco announced the introduction of its first threat-focused next-generation firewall (NGFW). The Cisco ASA 5500-series firewall is now integrated with intrusion-prevention technology and advanced malware protection from the company’s $2.7-billion acquisition of Sourcefire.

Cisco ASA with FirePOWER Services now addresses advanced and zero-day attacks, providing an integrated threat defense for before, during and after a breach. The new solution offers better protection, while at the same time lowering operating costs and reducing complexity. Organizations are now able to operate a more secure network with fewer security devices to deploy and manage, making the entire operation less complex.

Many traditional NGFWs are poorly integrated and unable to share intelligence between security layers, leading to lower threat effectiveness and the inability to address advanced attacks, according to David Stuart, senior manager of network security product marketing at Cisco.

Cisco ASA with FirePOWER Services is an integrated threat defense platform, unifying security across all defense layers, delivering improved threat protection and scalability across large datacenters, branch offices and endpoints.

In addition, Cisco ASA is centrally managed via the FireSIGHT console, giving security teams a comprehensive overview of exactly what is going on across the entire network. Important security tasks—including event impact assessment (this helps to alleviate false positives when it comes to attacks), policy adjustments (based on the evolving threat landscape) and user identification (compromised assets are quickly recognized and quarantined)—are automated to help simplify the whole operation.

One important feature of Cisco ASA with FirePOWER Services: it’s the only NGFW that offers more than point-in-time detection against advanced malware, which can easily evade traditional security defenses. In addition to continuous analysis, the new Cisco solution offers retrospective security, which enables IT teams to look at historical records to help identify, contain and remediate malware that initially found its way into the network.

A sign that the security segment these days is becoming more of a battleground for key talent: Intel (INTC) late last month poached cybersecurity veteran Christopher Young from Cisco to become general manager of its Intel Security Unit, which includes the McAfee business. Young will report directly to Intel president Renee James.

At Cisco, Young was senior VP of the global security and government group, responsible for strategy, engineering and product development. Before joining Cisco, Young held executive positions in end-user computing at VMware (VMW) and cybersecurity at RSA, which is owned by EMC (EMC).

Cisco Systems remains a ‘Buy’ in the Investments Portfolio up to $25.

Intel remains a ‘Buy’ in the Investments Portfolio up to $30.