7/29/2010
By David Silver, Research Analyst

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Since the beginning of earnings season, the Dow Jones Industrial Average is up about 2% as earnings have for the most part come in ahead of expectations.  An interesting chart from Bespoke Investment Group shows the percentage of companies that have beat expectations.  It has been enough to propel the market higher, but now we are approaching the end of earnings season and again the strength of the economy is seeping back to the forefront of investors' minds.

The advanced reading for second quarter GDP will be released tomorrow and if earnings are any indication, the number should be strong.  However, the economic data over the past few weeks has really put a damper on the positive earnings reports.  Many companies are even guiding for a strong second half of the year, but comments from Fed Chairman Ben Bernanke and other economic data points are pointing to a slow down. 

The strength of earnings season has put blinders on the market and it has responded, moving higher since the beginning of July, but the Euro is strengthening, the Beige Book did not paint a pretty picture of the economy, and consumer confidence reports are showing that many Americans do not expect the recovery to continue.  Maybe the rose-colored glasses that many analysts are wearing need a new prescription, but the question comes down to who to put more credence in: the government which is taking a small sample size to try to extrapolate the strength of the economy or the companies themselves which are experts (hopefully) in their section of the economy.  Taking a strong second half from Intel (INTC) plus a strong second half for the rails plus an improving trucking environment plus a strong expectation from Taiwan Semiconductor (TSM), which products are used in just about every gadget or electronic you can think of (from cell phones and computers to TVs) should equal a stronger second half of the year. 

David Silver
Wall Street Strategies