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Ahead of Wall Street - October 16, 2012

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Tuesday, October 16, 2012

With inflation not much of a concern for investors or the Fed, this morning’s CPI reading is essentially a non-event. Favorable Industrial Production and homebuilder sentiment index readings coming out a little later may get some traction in today’s trading action. But the real backdrop for today’s market is the real start of the third quarter earnings season, with 35 companies reporting results today including 16 S&P 500 members.

We will have a better feel for the Tech space outlook after results from Intel (INTC - Free Report) and IBM (IBM - Free Report) after the close today, but the overall tone of earnings reports this morning is on the positive side. We got solid earnings and revenue beats from Goldman Sachs (GS - Free Report) and Johnson & Johnson (JNJ), with Goldman also raising its dividend. Coke (KO - Free Report) came in-line with expectations, with case volume weakness in the Asia-Pacific region (particularly China) and negative currency effects offsetting volume gains elsewhere. UnitedHealth (UNH - Free Report) beat on improved  margins, offsetting top-line weakness, in a potentially positive sign for the healthcare group as a whole.

Zacks ESP or ‘Earnings Surprise Prediction’, our proprietary leading indicator of positive earnings surprise, had correctly predicted the positive earnings surprises from Goldman this morning and Gannett (GCI - Free Report) on Monday. For the Intel and CSX (CSX - Free Report) reports coming out
after the close today, the Zacks ESP is indicating negative surprises.

We will know more about this morning’s reports after managements discussion of the business outlook on the earnings calls. And if managements guidance is as reassuring as these results, then the earnings picture may not be that dire. But it’s too early to draw any firm conclusions about this earnings season from the admittedly small sample of results we have seen thus far. At stake are estimates for the fourth quarter and beyond, which seem to be unusually high at this stage. We will soon find out one way or the other.

Sheraz Mian
Director of Research

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