Wednesday, April 25, 2012

All eyes will be on Ben Bernanke who holds a press conference this afternoon following the two-day FOMC meeting. But investors have plenty of news this morning to keep them occupied – from strong earnings reports from a host of blue chip companies, including Apple (AAPL), to a downbeat March Durable Goods reading for March. My sense is that investors will read the Durable Goods miss as improving the odds of further Fed support and not let this disappointment come in the way of the earnings centric positive day, at least though this afternoon when Bernanke starts speaking.

That said, the Durable Goods miss is disappointing and will likely feed the narrative of a loss of momentum in the economy. The report was expected to show a decline from the February level, but the 4.2% drop on a ‘headline’ basis was significantly weaker than expected. This compared to a gain of 1.9% in February, which was revised down from 2.2% originally reported. ‘Core’ Durable Goods Orders, officially called nondefense capital goods orders ex-aircraft, were also much weaker than expected at down 0.8% after February’s 2.8% gain.

This reading raises questions about the health of business spending outlook going forward and will likely be perceived as another sign of loss of momentum in the economy. It will be interesting to see how Ben Bernanke interprets the recent softer run of economic data in this afternoon’s press event. But investors expect him to provide enough reassurance on fresh Fed support to keep sentiment high. Disappointment on that count, whether real or perceived, will not go down well.

Of this morning’s major earnings releases, we got positive surprises from Boeing (BA), Eli Lilly (LLY), Caterpillar (CAT), and Sprint (S). Caterpillar’s raised guidance following the earnings beat on modestly lower than expected revenue is particularly reassuring given the company’s substantial emerging market leverage. Apple produced another impressive earnings result after the close on Tuesday.

Sheraz Mian
Director of Research

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