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Investing Specialists

Earnings Take the Wheel

Stronger earnings reports trumped economic indicators this week.

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This week corporate earnings news overwhelmed the few economic indicators that were released. I was relieved that markets largely ignored the big weekly jump in initial unemployment claims that were the result of an artificially depressed number last week. Housing data this week, while down, looked better than I feared and failed to have much impact on the market.

After last week's disappointing earnings reports, this week's strong results from the manufacturing sector powered the market ahead dramatically on Thursday. While manufacturing results were generally robust across all geographies, heavy-duty results in developing markets were clearly an important driver of strong news out of the manufacturing sector. Outstanding earnings, combined with powerful forward-looking statements from many manufacturers, helped allay market concerns over other manufacturing indicators--including the ISM manufacturing indicators--that had begun to show some softness.

 Apple's (AAPL)earnings report also showed the powerful force of consumer electronics in moving the economy forward during this recovery. I think earnings will continue to drive the market next week, along with continued reactions to the European bank stress tests. At the end of the week, the first reading on second-quarter GDP has some potential to move the market. A lot of the forecasts for the quarter are in the 2% range, but I believe the results will show closer to 3% growth driven by business spending and less negative effects from the residential housing market.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.