1) Q2 earnings expectations are low in the trading community , with many traders expecting disappointments due to higher commodity costs and knock-on effects from the Japanese earthquake; 2) analysts have not lowered Q2 earnings estimates, and for once they might be right; 3) most traders are expecting corporations to lower guidance for the second half of the year, but bulls argue that many of those factors that hurt in Q2 (the quake, higher commodity costs) will be less noticeable in the second half.
A key bull argument: growth in the second half will be twice that of the first half. Stronger auto production, lower gasoline prices, a stronger Japan means 3 + percent GDP growth for the second half.
What could go wrong with the bull analysis? Plenty: the Fed is not decreasing their balance sheet, we are moving into Japan-like GDP growth, an eventual Greek default, and several traders raised the possibility of a China banking scandal in which they repatriate capital to bolster their balance sheets, potentially causing a spike in rates here.
1) A better Q3 than Q2? That's been the trend recently. Since 2003, Q3 has been the best quarter of the year for the Dow, S&P, and Nasdaq, which have all seen an average Q3 return of 3-4 percent.
2) Darden Restaurants (DRI) falls about 1 percent even as Q4 earnings were inline with estimates. Comps rose 2.5 percent as better-than-expected Red Lobster, Capital Grille, and Longhorn Steakhouse comps offset disappointing sales at its Olive Garden restaurants. The casual dining company also boosted its quarterly dividend by 34 percent to $0.43. Stronger expected sales in the current year will help propel earnings to grow by 12-15 percent, mostly higher than the Street's expectations of 12 percent growth.
Not much on food inflation, but they will certainly address that on the conference call. They had previously guided to cost inflation of 4 to 4.5 percent.
3) Oshkosh jumps 9 percent after a filing revealed that investor Carl Icahn has acquired a 9.5 percent stake in the maker of military, emergency response, and construction vehicles.
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