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Midday Market Update

Stocks Mostly Higher; Earnings in Focus

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U.S. Market    
Stocks were mostly higher today, although results from  IBM (IBM) and  General Electric (GE) dragged down the Dow.

There were no major economic data releases today.

At midday the Dow was down 0.1%, while the S&P 500 and Nasdaq were up 0.8% and 1.3% respectively.

Stocks on the Move
International Business Machines' first-quarter results came in well below our expectations, as the firm's hardware and software results disappointed. Overall revenue declined 5% year over year to $23.4 billion, while free cash flow declined to $1.7 billion, versus $1.9 billion generated in last year's first quarter. Hardware was particularly weak, falling 13% from the year-ago quarter. Mainframe revenue did grow 7% year over year to approximately $650 million, but this is a poor result given IBM's recent refresh of its System z portfolio. Management blamed the weakness in mainframe sales primarily on execution and deal push-outs. Shares fell over 7% on the report.

Shares of General Electric fell 3.7% after the firm reported a 16% rise in first-quarter net income. GE CEO Jeff Immelt said that weakness in Europe was responsible for some mixed results in the firm’s industrial and power-and-water divisions. The firm reiterated their full-year forecast.

 Google's (GOOG) first-quarter results provided continued  evidence of the firm's wide economic moat at work. Quarterly advertising revenues excluding payments to publisher partners (ex-TAC) grew to $8.9 billion, 16% more than last year, greater than our estimates for growth in digital advertising. However, Google operating income (excluding Motorola Mobility) grew less than 11% versus 2012. Google's distribution traffic acquisition costs in the quarter grew to 7.9% of revenues generated from Google properties versus 6.4% in the prior year. Shares were up 2.7% at midday.

 Microsoft (MSFT) reported fiscal 2013 third-quarter results that were  within our range of expectations. The firm also announced the departure of CFO Peter Klein, who is leaving the firm after four years as CFO and 11 years at the firm. Revenue growth of 18% was driven by growth across all segments, with notable strength in Windows and its Windows Live division, its server and tools segment, and its entertainment and devices segment. Excluding pre-sales and upgrade revenue recognition, revenue growth would have been 8% for the quarter. Operating expenses increased 4% year over year due to higher marketing costs associated with new product launches. Shares were up 3.3% at midday.

Foreign Markets
Asian shares rallied on the day. The Nikkei 225, Shanghai Composite and Hang Seng were up 0.7%, 2.1% and 2.3% respectively.

European markets were mixed. In late trading, Germany’s DAX was down 0.3%, the FTSE 100 as up 0.7% while the Paris CAC was 1.3% higher. 

Jeremy Glaser has a position in the following securities mentioned above: MSFT. Find out about Morningstar’s editorial policies.