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By Jason Stipp | 07-24-2009 12:00 PM

Do Earnings Spell Recovery?

We dig into some of the surprises and disappointments so far for clues about the state of the market turnaround.

Jason Stipp: I'm Jason Stipp with Morningstar. With earnings season well under way, market watchers are picking apart the earnings reports for signs that the economic recovery is actually going to have some legs.

Here with me to talk about some of the surprises and some of the disappointments is Jeremy Glaser. He's morningstar.com's markets editor. Thanks for joining me, Jeremy.

Jeremy Glaser: You're welcome, Jason.

Stipp: We've had a good number of earnings reports now from a few different sectors. Let's start off with the banks. What's your big takeaway for the banks? Any surprises in there?

Glaser: Yes, I think the overall takeaway is that it seems that the credit crisis that's gripped the banking sector for so long seems to finally be coming to an end. I think the thing that was maybe a little surprising to me was the difference in how the banks are approaching this almost return to normalcy.

You see Goldman Sachs being very aggressive out there. They posted earnings that were very surprising on the upside, and you saw that they were doing a lot of proprietary trading--they were using their own balance sheet to make more money, taking more risks, issuing a lot of equity and debt for companies, and really doing a good job with that.

While other companies like Morgan Stanley, which is another strong bank that made it through the crisis, seemed to be a lot more conservative and was not as adventurous out there when they were doing their trading. We saw that their earnings disappointed a little bit.

I think seeing those banks take divergent paths is something that really struck me when I was taking a look at those earnings when they were coming out. I think it will be particularly interesting to see which of those strategies ends up paying off in the long run.

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