May 18: Strong Earnings Reports – Economic Highlights

With nothing major on the economic calendar today, stocks will likely struggle to gain traction, with macro concerns dominating the market discourse. We do have a number of positive earnings reports from household names that may help improve sentiment after days of market weakness.

We had a solid report from Dell (DELL) after the close on Tuesday, helping offset some of the negativity produced by Hewlett-Packard’s (HPQ) weak report. We also have an impressive report from farm machinery giant Deere & Co. (DE). We also have a number of reports from retailers, with Target (TGT) and Ambercombie & Fitch (ANF) coming ahead, while Staples (SPLS) coming short of expectations.

Dell not only beat expectations, but raised guidance for the coming quarter, reassuring the market that there may still be some life left in the lowly PC market. We should keep in mind, however, that Dell is substantially geared towards the corporate end market, while Hewlett-Packard is primarily a consumer PC player. The growing popularity of tablet computers is more of a threat to the consumer PC market, but appears to have limited impact in the corporate end-market, at least no yet.

Deere & Company came ahead of expectations on both the top- and bottom-lines. Demand for the farm equipment giant’s tractors, combines, and other machinery has been lifted by the surge in agriculture commodity prices. The concern lately has been that with the prices of many of those commodities pulling back, what impact it will have on demand for farm equipment going forward.

Target handily beat EPS expectations on the back of strength in the credit card business, while revenue was a shade short of the Zacks Consensus. The retailer came out with same-store sales growth of 2%, maintaining its positive growth momentum of the last few quarters. As we saw with Wal-Mart (WMT) the other day, the retail group remains under pressure due to high gasoline prices. However, the recent pullback in oil prices, if sustained, should be a net positive for the group.

It will be interesting to see how stocks respond to today’s batch of reassuring earnings reports. But the market’s recent struggles have have been centered on macro concerns about economic growth questions. And while today’s reports are helpful in that debate, they are unlikely to resolve it