Thursday, April 26, 2012

This morning’s earnings reports are not that bad if we realize that not every company can do what Apple (AAPL) did the other day. That said, we do have a few uninspiring reports this morning from bellwether operators like Exxon (XOM) and United Parcel Service (UPS) that puts Apple’s outperformance in its appropriate context. While we can’t say that this morning’s earnings reports are altogether disappointing, there is no other way of describing Jobless Claims reading.

The Jobless Claims data fails to satisfy the doubts raised by the recent run of underwhelming labor market reports, starting with the surprise March payroll miss. The official report says that Initial Jobless Claims dropped by 1000 to 388K, but in reality it is a 2000 increase as the preceding week’s tally was revised higher by 3000. The four-week average, which tends to smooth out the inherent week-to-week jumpiness of this series, increased by 6.2K to 381.8K last week.

It is unclear at this stage whether the emerging softness in labor market over the last few weeks is a reflection of economic improvement stalling or just due to complications in seasonally adjusting this data. Bernanke has his own theory to explain the recent run of soft labor readings, which he explained again in his press conference Wednesday afternoon. He thinks that the pre-March strength may have been caused by a temporary catch-up in hiring to compensate for the over-reaction of employers during the downturn. But irrespective of whether seasonal factors or something more fundamental is behind the recent run of weak labor market readings, it is nevertheless raising doubts about the sustainability of the recovery. We will get a better read on the labor market in a week from Friday when we get the April non-farm payroll numbers.

We have a huge day on the earnings front today, with more than 60 companies from the S&P 500 coming out with results. Of the more noteworthy results this morning, we got earnings misses from Exxon and UPS, though Pepsi (PEP) and Dow Chemical (DOW) came ahead of earnings expectations. Amazon (AMZN) and Starbucks (SBUX) will report after the close today.

Sheraz Mian
Director of Research

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