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April Showers Good News

So the final day of the month finds the S&P 500 up 9.5 percent for April, the best one-month showing since March 2000.

Yesterday I asked several sell-side desks what their impression was of their client's trading positions. Most said they had many clients still short, and some who were even down for the month because they refused to cover. This comment was typical: "most guys are still short and holding out for the next move lower."

Cost cutting is a major factor in the ability of companies to beat earnings expectations, and we are seeing that today in reports from companies as different as Dow Chemical and Starwood.

1) Dow Chemical up 11 percent pre-open, reported a profit of $0.12 vs. a loss of $0.19 expected. As with most companies, volume (down 19 percent year over year) and pricing (down 20 percent) were both under pressure.

2) Hotel operator Starwood (Sheraton, St. Regis, W) reported earnings of $0.14, above consensus of $0.03. It's not due to higher rates or higher occupancy, both of which have been dropping: revenue per available room (RevPAR) was down 23.5 percent. It's the cost cutting.

The Price Is Right. Despite struggling with weaker demand, many companies successfully implemented favorable price increases which helped them post upside earnings surprises today:

1)Shares of Procter & Gamble rise 2 percent after beating estimates by 4 cents. Demand for its products continued to wane, as volume fell 5 percent. However, organic sales rose only 1 percent - helped by a 7 percent gain from price increases.

For the year, P&G lowered the top end of its organic sales growth forecast, but maintained its EPS estimate to be inline with estimates.

2) Colgate-Palmolive beat estimates by a penny, but it too saw organic sales grow primarily due to an 8 percent rise in prices. Volume was flat on the quarter.

On hopes of improving volume and continued favorable pricing, the company is optimistic that organic sales growth will continue to rise for the rest of the year. As for earnings, CEO Ian Cook is "comfortable" with the street's current forecast for Q2 and the full year.

3) Manufacturer Owens-Illinois handily beat estimates despite at 23 percent drop in sales. However, notable price increases for its glass containers significantly offset weaker demand impacting its top line results. CEO Al Stroucken expects demand challenges "over the next several quarters."

Elsewhere:

1) ExxonMobil reported earnings of $0.92, 3 cents short, but that is 58 percent below the earnings of a year ago, partly due to the decline in oil prices. Upstream production rose slightly.

Separately, JP Morgan upgraded the entire energy sector, noting the group had shown "sufficient improvement." It has underperformed techs, financials, and consumer discretionary for several months.

2) MGM up 43 percent pre-open as they finally reached an agreement with partner Dubai World to fully fund the CityCenter project. Both will fund their remaining equity contributions to CityCenter through letters of credit. In addition, CityCenter's lenders will immediately fund the full $1.8 billion senior secured credit facility.

3) Solar manufacturer First Solar reported earnings much better than expected, so all the solar stocks like Evergreen Solar are trading up.

Symbol
Price
 
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%Change
QRE
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DOW
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FSLR
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HOT
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MGM
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OI
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PG
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XOM
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