A good earnings season is just what the doctor ordered

Good morning,

• Strong earnings drive markets higher, particularly tech stocks;

• A good earnings season is just what the doctor ordered;

• US data also improving, durable goods and jobless claims up next;

• Five Dow companies scheduled to report on Thursday.

Another batch of better than expected earnings is driving stock markets higher on Thursday, with European indices up more than half a percentage point and US futures pointing to a similar open. Key behind today’s surge has been strong results from Apple and Facebook, which is driving the recovery is tech stocks following the recent mauling the sector has received. With that in mind, the Nasdaq is expected to lead the way after the open, with futures currently 49 points higher, or 1.39%, while the S&P is seen 10 points higher and the Dow 56 points higher.

Corporate earnings season appears to have given investors the boost they have been craving for months. Although results until now have perhaps only been good as a result of the bar once again being set quite low following a number of profit warnings over the last month, there’s been a noticeable improvement this week that has given investors a lot more confidence. This was especially true of the results from Apple and Facebook after the close on Wednesday, with both easily exceeding expectations, while Apple also made a few investor friendly announcements including another share buyback, an increase to the dividend and a seven-for-one stock split.

A good earnings season is just what the doctor ordered following a few depressing months for the markets. The ongoing crisis in Ukraine, the reduction in monetary stimulus from the Fed and the poor economic data in the first quarter have left investors feeling fairly downbeat. The recent sell-off in tech and internet stocks was just the icing on the cake, acting as a warning sign that these massive valuations will no longer be tolerated.

It couldn’t have come at a better time as well, with economic data expected to improve in the US following the end of the unusually poor winter weather. We could be looking at a very good second quarter for the markets, as long as we don’t get another flare up in Ukraine which is far from unlikely. However in this case, the impact on the markets would be determined largely by the size of the flare up rather than the existence of it. A certain amount of geopolitical risk is already priced into the markets so I imagine it would take something pretty significant from Russia to significantly hit the markets again.

The end of the week is looking pretty quiet from an economic data standpoint, with durable goods orders and jobless claims the only notable releases today. Durable goods data is a very good indicator of long term confidence in the economy from both businesses and consumers so I expect this to be followed closely. A number in line with expectations of 2%, or 0.6% for the core reading would be very encouraging. Weekly jobless claims have flirted with sub-300,000 territory for a couple of weeks now and while expectations are currently for 310,000 last week, a number below 300,000 would be another very encouraging sign for the current quarter.

There’s also plenty of companies reporting earnings again today, including 3M, Verizon and Caterpillar before the opening bell, with Visa and Microsoft reporting after the close. This is a sixth of the Dow components all reporting on the same day so the next 24 hours could be fairly volatile for the markets.