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Macro View

The deluge of this morning’s favorable economic and earnings reports should help stocks sustain Wednesday’s Fed-inspired gains. We got positive weekly Initial Jobless Claims numbers and a better-than-expected Durable Goods Orders reading. On the earnings front, Caterpillar’s (CAT - Analyst Report) blowout results will likely ease some of the lingering concerns about weakness in China and other emerging markets.

Of this morning’s economic releases, the most important number was the roughly in-line Jobless Claims reading, showing a gain of 21K to 377K. Please recall that we saw an unusually big drop last week, likely resulting from complications in seasonally adjusting the data at this time of the year. Today’s reading goes some way towards correcting that. The four-week average, which smooths out the week-to-week fluctuation, dropped by 2.5K to 377.5K, maintaining its downtrend of recent weeks.

In other economic releases, the December Durable Goods Orders report came in better than expected, highlighting that corporate capital expenditures will remain a growth driver for the economy despite the expiration of accelerated depreciation expense. Headline Durable Goods Orders increased 3% in December, above the 2% consensus expectation, while the November headline gain of 3.9% was revised upwards to 4.3%.

The ‘core’ Durable Goods Orders reading -- which strips out defense and aircraft orders given their inherent ‘lumpiness’ on a month-to-month basis -- also came in better than expected at a gain of 2.1%. This compares to the weak ‘core’ reading in November of a 1.2% drop.

On the earnings front, Caterpillar beat big, blowing past expectations and coming out with Apple-like numbers. Driving Caterpillar’s record quarterly results was continued resilient demand for the company’s products in international markets, which should help ease some of the concerns about slowing demand in key emerging markets.

Importantly, the company guided higher, both for revenue as well earnings, which should help cause positive estimate revisions in the coming days. 3M (MMM - Analyst Report) beat on EPS and revenue, with strong demand in industrial and transportation end-markets offsetting weakness in consumer electronics. Eaton Corp (ETN - Analyst Report), another diversified industrial operator, missed both EPS and revenue expectations.

AT&T (T - Analyst Report) missed consensus EPS by a penny, though its revenue came out ahead of expectations. The company had a number of one-off items, including termination fees for the failed T-Mobile deal. The EPS miss notwithstanding, the company had an overall good report in terms of new smart-phone subscribers, cash flows, and share buyback plans.

Netflix (NFLX - Analyst Report) came out ahead of expectations after the close on Wednesday as the company was able to reverse the impact of its recent mis-steps by making strong subscriber gains. Starbucks (SBUX - Analyst Report) reports after the close today.

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