Hold that applause: Japan faces acid test in reform

Tomohiro Ohsumi | Bloomberg | Getty Images

Shinzo Abe, Japan's prime minister and president of the Liberal Democratic Party (LDP), places a red paper rose on an LDP candidate's name to indicate an upper house election victory at the party's headquarters in Tokyo, Japan, on Sunday, July 21, 2013.

Japanese stocks are up 0.5 percent as Prime Minister Shinzo Abe's coalition won control of the upper house of the Parliament.

This means an end — at least for the time being — to decades of divided leadership. It also means no elections for the next three years. Will there be sufficient stomach for Abe's own party members to enact painful reforms?

The easy monetary policy is the easy part...now comes tougher stuff that includes: 1) tax breaks for investments; 2) reforming social security, including a lid on pension and health insurance, and; 3) a proposed hike in the consumption tax from 5 to 8 percent.

Meanwhile, could a comeback be in store for nuclear? Greg Valliere noted this morning that Shinzo Abe's big win in the Japanese elections may mark the long-awaited restart of nuclear power after the Fukushima horror two years ago prompted the country to slap a moratorium on the power source.

Greg notes that all but two of Japan's 50 nuclear plants are closed in the wake of the Fukushima disaster. He has a point: there are new safety rules that have just been promulgated by Japan's nuclear authority. There are four utilities that have already applied to restart 12 nuclear reactors, which represents about one-fourth of them. The start-up could lessen demand for crude, which Japan's facilities have been burning in lieu of nuclear fuel.

Elsewhere:

1) McDonald's, at $1.38, two cents short of estimates. The results were a bit of a puzzle, and the reverse of McDonald's recent sales figures.

Recall back in June, same store sales were a clear disappointment, yet oddly enough it was the U.S. that was the big drag: sales had fallen 0.2 percent, well below consensus of up roughly 2 percent. Still, Europe had performed better than expected, up 0.2 percent, as was Asia/Pacific/MiddleEast/Africa, up 1.1 percent.

What happened? Some are noting that Wendy's has been stronger recently, with the newly-launched Pretzel Bacon Cheeseburger garnering strong sales.

2) Earnings so far: Financials have been the big bright spot, with significant upside surprises from Goldman Sachs, Bank of America and JP Morgan. Technology has been a disappointment, with notable downside surprises from Microsoft and Google. It's early....only 20 percent of companies have reported...but so far only three sectors of the S&P 500 are reporting positive earnings growth: financials, telecom, and consumer discretionary.

One other relative bright spot has been industrials, with positive reports from General Electric, Johnson Controls, and Dover . Today Nomura downgraded Honeywell to Neutral, arguing that at 17 times forward earnings valuation was now "stretched."

Analysts have been bullish on Honeywell for some time; of 23 analysts that track Honeywell, 15 have a 'Buy' or 'Overweight' rating; the rest score the company as a 'Hold'.

—By CNBC's Bob Pisani