IBM's big 26 percent profit jump could set the foundation for another decent day in the market if there are no nasty surprises in the wings to derail it.
Earnings will again rule the tape Thursday, with many big names reporting. Merrill Lynch reports in the early morning, and like other financial companies, it is expected to show the continuing impact of the credit crises. But if it does not deliver a worse than expected report, stocks may head into the trading day with a positive tone.
Pfizer also reports before the bell, along with United Technologies, CIT, TD Ameritrade, Southwest Airlines and PNC. Google reports after the bell.
There are a few items on the economic agenda, including weekly jobless claims at 8:30 a.m. The Philadelphia Fed survey for April and leading indicators are both reported at 10 a.m.
Fed Vice Chairman Donald Kohn speaks and takes questions at the Richmond Fed's Credit Market Symposium at 9:45 a.m., and Dallas Fed President Richard Fisher speaks to the Chicago Council on Global Affairs luncheon at 2:05 p.m.
President Bush meets with U.K. Prime Minister Gordon Brown at the White House. The two leaders speak to the press at 2:35 p.m. (Brown and Bush are expected to discuss the subprime meltdown and the price of oil among other topics. Brown meets with Fed Chairman Ben Bernanke Friday)
Earnings Central
Wednesday's earnings-driven market was the best performing since April 1. The Dow was up 2.1 percent to 12,619 and the Nasdaq was up 2.8 percent to 2350. The S&P 500 rose 2.3 percent to 1364.
IBM after the bell Wednesday said it earned $2.32 billion, or $1.65 per share, on $24.5 billion in revenue. Analysts had expected earnings per share of $1.50 and revenues of $23.8 billion. IBM certainly benefits from its multinational structure, with 65 percent of its revenues coming form overseas. But the company also upgraded its forecast for the year, and there were bullish comments from CEO Sam Palmisano. "We feel good about the year," he said in a press release.
In its conference call, IBM was reported to say its customers are carefully reviewing new contracts as they look for ways to cut costs, but it also reassured that its momentum is more than just currency driven.
Ebay, reporting after the bell, also surprised on the upsidebut its core auction business shows signs of weakness. Ebay had profits of $459.7 on revenues of $2.19 billion, better than expected.
Those two reports were just gravy on a day where some big companies delivered, a major feat in a market filled with distrust. J.P. Morgan and Coca-Cola , two Dow components, both came in ahead of expectations. J.P. Morgan's Jamie Dimon followed other Wall Street executives with comments that the credit crunch is closer to the end than the beginning. Financial stocks took off, and the S&P financial sector gained 3.3 percent. The materials group was the day's best performer, gaining nearly five percent on rising commodities prices.
As of now 12% of the S&P has reported, and earnings are now reported at 21.6 percent below last year's first quarter. 45 companies or 74 percent have surprised on the upside.
I spoke with Brown Brothers Harriman senior portfolio strategist Brian Rauscher, who called in from Europe to discuss the earnings period. Rauscher has been saying all along that he doesn't think first quarter profits are as bad as "the gloom and doomers are saying."
"Maybe we get there later this year, but right now corporate America remains resilient. Some are gaining on the weak dollar and global growth but profits are profits," he said.
"Whoever can't get pricing power is potentially hurt," he said. "These technology companies aren't as affected." He also said multinationals that sell products abroad aren't affected and energy companies themselves aren't affected. "If oil goes to $120 or $125, it again will slow the domestic economy, but if crude is going up because the dollar's going down, there are offsetting factors."
The market also responded Wednesday to inline consumer price data, which showed an uptick, but not the surprise runup seen in PPI Tuesday. I asked Rauscher about the bubbling price of oil, which in no way seems factored into Wall Street's current earnings or economic forecasts.
Oil and other rising commodities seem to be financial wild cards. It s unclear how long the momentum runup will continue, and if oil does stay high, Rauscher said analysts will only include the impact quarter by quarter for the remainder of the year. "I don't think analysts have anything higher than $80 or $85 in their models," he said. "Very few will take the hatchet to the year. They're just skeptical that crude prices remain at these levels." Yet, I note we are seeing impact already. Airlines and trucking companies are crying from gas pains.
"I think we're in a kind of blow off phase for crude," he said. "For the time being, I think it's going to go higher as the dollar weakens. What could turn this back in the other direction is if we're starting to see some demand destruction." He also said if the dollar keeps falling, the G7 may act to stop it.
The dollar Wednesday fell more than 1 percent against the euro, closing at a new low of $1.5956 per dollar. It fell just slightly against the euro.
"I think if the dollar rallied, some of these commodity prices could pull back. That's the thing we have to keep our eye on," he said.
Getting Technical
Scott Redler of T3 told us last week that the market was set up to potentially breakout of its downtrend if the Dow closed above 12,800. But then there were those disappointing GE earnings at the end of the week that sent the market into a tailspin, and the downtrend continued. But now with Wednesday's rally, Redler said the market pattern is technically stronger than it was even last Thursday.
"There was one more shakeout, and the market absorbed that bad news. Now there has been more time and a stronger set up in place," he said. If the market does break the downtrend, his near-term target is 13,200-13,300 on the Dow and 1420-1430 on the S&P 500.
Hey, 19!
CNBC is 19-years-old on Thursday. Our chief numbers cruncher Ariel Nelson provided some helpful statistics to remind us what the markets looked like back then. The Dow was at 2,337.79, and has increased 440 percent for a compound annual growth rate of 9 percent.
The S&P 500 was 301.72 and has increased 352 percent, an 8 percent growth rate, and Nasdaq was at 417.76. It has risen 463 percent with a 10 percent annual compound growth rate.
Crude was just $21.22 per barrel, compared to today's $114.93, and remember gasoline prices? The price of a gallon was just $0.72, and it has risen 308 percent to $2.94 per gallon. Gold was $386.20 per troy ounce, compared to today's $948.30.
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