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Mixed Signals From Earnings World

|Includes: AMZN, Microsoft Corporation (MSFT)
For the most part, 1Q10 earnings are coming in hotter than consensus estimates. Companies, whether it's industrial or consumer discretionary, continue to tap into the recovery underway in global demand. Sales, importantly, are beating consensus, and in a few instances quite handily. Moreover, our sense is that corporate executives are gaining increased visibility into their future business, issuing earnings guidance that hints at further upside. Somehow, someway companies continue to maintain a tight grasp on operating costs and operating expenses, well in excess of a year into cutting deeply into the employee rolls and inventory outlays. Companies are a little more optimistic about the future, but still not enough to start hiring again. All of that in mind, there looks to be hesitance on the part of some investors as earnings results from the likes of Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) did not match aggressive estimates modeled for by the analyst community. The negative reaction to these reports, which showed strength on the top and bottom lines, would suggest the market is approaching fair valuation. In order to make that call, however, the same form of reaction need to be evident elsewhere in the markets. Thus far, those companies that are beating on sales and earnings at the higher range of estimates are enjoying increased share prices, implying there is upside potential that exists.

There was a rather interesting read on Bloomberg today about the impact should Greece receive a bailout by the IMF. Since there is apparently news in the markets that Greece will be making an announcement later today, assume Greece debt holders take a haircut. What does this mean? Well, it could mean pressure on the debt issued by other fiscal unsound countries, and higher borrowing costs, for the likes of Spain and the U.K. Pay particular attention to the reaction in the debt markets and within credit default swaps to gather the market's temperature. There was also a headline on the Wall Street Journal website that Greece is set to ask the EU and the IMF for emergency financial aid, and now the hope is that the two bodies will move quickly enough to stave off a potential default on major loan payments due May 19.

Economic Data
Durable Goods Orders

The market appeared to view favorably the March durable goods orders data, zeroing in on the +2.8% new orders increase ex. transportation. Driving this number, which handily beat consensus, was:

• Primary metals: +3.5
• Computers: +12.9
• Electrical and appliances: +4.9%
• Machinery: +8.6%

There were aspects to be concerned about, however, including non-defense capital goods new orders falling 7.5% and transportation orders declining for the second consecutive month. But, overall, the report supports the solid earnings results from most technology companies recently. Although the reports of some did not match upper consensus estimates, the results demonstrated an economy that continues to put the troubles of 2009 in the rearview mirror. Auto and auto parts orders rose 2.5%, compared with a 1% drop the previous month. The U.S. auto industry reported healthy sales gains in March due to company incentives. The 1% drop in February came as a result of the shutdown at Toyota.

Disclosure: none