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David Darst: Three keys for earnings

Monday, 22 Jul 2013 | 4:25 PM ET

It's earnings season, one of four time a year when stocks move the most.

So far, the picture is mixed, with around 65% of companies reporting earnings that beat forecasts. But, revenues have been on the lighter side, with only half of S&P 500 companies reporting better-than-expected earnings.

Growth in earnings has not been evenly distributed across sectors. According to statistic compiled by Thomson Reuters I/B/E/S, the financial services companies in the S&P 500 are reporting a blended earnings growth rate of 24%. On the other side of the spectrum, materials companies are showing their quarterly earnings shrink by 9% while energy companies are seeing a drop in revenue by nearly 10%.

Also disappointing investors are tech companies. With 17 tech companies in the S&P 500 index reporting earnings so far, the average blended earnings are down 5.5% for the sector.

Two tech companies that missed analyst expectations were Google and Microsoft.

While Google's revenue grew 19% from last year to $14.1 billion, it missed analysts' average estimates by $200 million. Google's earnings (excluding items) were $9.56 per share while the market expected at least $10.80 per share. This kicked the company's share prices down around 5%.

Up in Redmond, Microsoft's earnings also underperformed expectations. That company's $0.66 in earnings per share were $0.09 less than what the Street thought it would get. Like Google, Microsoft's shares fell close to 5%, too.

So, what will be needed from earnings to lift stock prices?

David Darst, Chief Investment Strategist for Morgan Stanley Wealth Management, says there are three keys for earnings.

To hear what three things

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