Bullish comments from FedEx (FDX) - Get Report about the global economy are "as reliable as a Federal Reserve official's comment, if not more so," says Barbara Marcin, portfolio manager at Gamco. "This is a worldwide business operator that sees everything. This is as good a look at the economy as any."

The market responded in kind Wednesday, lifting the major indices out of the doldrums. The

Dow Jones Industrial Average

ended the day up 0.95% at 11,079.46, while the

S&P 500

gained 0.97% to 1252.20. The

Nasdaq Composite

rose 1.62% to 2141.20.

FedEx closed up 5.11% Wednesday, and some of the other market leaders on the day were the industrial giants that benefit from strong economic growth, including

Alcoa

(AA) - Get Report

,

Caterpillar

(CAT) - Get Report

and

DuPont

(DD) - Get Report

.

The FedEx report -- a 27% jump in its fourth-quarter earnings, plus upbeat comments about the U.S. and global economic outlook -- came on the heels of strong earnings reports by the brokerage firms, the latest being

Morgan Stanley

(MS) - Get Report

. The combination helped shift the market's focus from inflation and the Fed, and sparked optimism for more corporate American home runs.

Unlike the first quarter, when strong profits kept stocks in a bullish trend until the earnings music stopped, the positives surrounding second-quarter earnings season could outweigh the negatives for longer than a few weeks. Lower commodities prices, a slightly more confident Fed chairman, and less concern about a hard landing in the economy could make for a decent summer in the stock market.

Maybe FedEx's comments are ringing the season's bell, reminding the markets that the global economy is still in relatively good shape, despite fears the Fed and other global central banks will overshoot. Some nervousness about typically messy transitions in monetary policy are understandable, says Marcin, but the Fed isn't "wrong right now."

Indeed, the economic data have recently been surprising to the upside. Manufacturing reports have been strong, and business expenditures are high. Jobs data have been on a weakening trend, but not dire, and the housing market is cooling but not collapsing. As for inflation, as long as unit labor costs don't accelerate markedly, profits growth also should support an extended environment of good credit and economic recovery, writes John Lonski, chief economist at Moody's Investors Service.

"People were thinking this quarter would be a 2% growth quarter, but I don't see the sustainability of that," says Margaret Patel, portfolio manager at Pioneer Investments, acknowledging that 2% is a lowball estimate. Companies are ebullient; they have pricing power, and prospects for individual companies are very strong, she says. "FedEx is a perfect example of that -- a company highly sensitive to the global economy reporting such strong earnings."

The Fed is the X factor. The central bank still could derail the economy by tightening so much that it is too costly for companies to borrow money, which would hurt their prospects for growth and credit quality and increase

the default rate, says Patel.

In contrast to FedEx, Alcoa rang last quarter's earnings bell with a gong. The firm foreshadowed the market's high anxiety this spring by warning that inflation pressures were mounting, even as the company reported double-digit earnings growth. Inflation then became the boogeyman of the stock market, as investors tested the new Fed chairman at every turn.

But it seems the markets and the Fed are somewhat aligned right now, if only for a short time. The barrage of unified Fedspeak and Ben Bernanke's expounding on the intricacies of data dependency have given the Fed some much-needed credibility and quelled some market nerves.

Earnings season, which will peak the final three weeks of July, typically kicks off with Alcoa's report, and it will be telling to follow what the company says about inflation and its pass-through of high raw-materials costs.

Earnings are expected to grow in the double digits again for the 12th consecutive quarter, on pace to break the recent record of 13 straight quarters of double-digit earnings growth between the fourth quarter of 1992 and the fourth quarter of 1995, according to Thomson Financial. Thomson estimates 11.7% earnings growth for the S&P 500 in the second quarter this year, 15.3% in the third quarter and 14.7% in the fourth quarter this year. Last quarter, Thomson estimated approximately 11% earnings growth, which was easily beaten when the final tally recorded 14.9% earnings growth.

Earnings growth is about measuring against the previous year, which can skew the picture. It is important to note that last year's second half included hurricanes Katrina and Rita. Due to their poor showing last year when the hurricanes hit, insurance companies, in particular, are expected to record outstanding earnings growth in the second half of the year.

Financials' earnings are expected to grow 11% in the second quarter, but jump to 28% in the third quarter and 40% in the fourth quarter, according to Thomson. The energy sector, which contributed most to the first quarter's earnings growth, will take a back seat to financial companies in the second half of the year.

General Motors

(GM) - Get Report

and others in the auto sector are expected to display strong earnings growth in the second half of the year as well -- but that is compared to dismal earnings in the third and fourth quarter of last year.

The reality of GM's financial health is not pretty. GM's credit rating was cut deeper into junk territory Tuesday by both Moody's Investors Service and Standard & Poor's. The company is negotiating with bank lenders to place a $4.5 billion revolving-credit facility ahead of its $30 billion of other debt in the pecking order of obligations.

Meanwhile, GM's stock was up 2.14% Wednesday, while its bonds were down. GM's 8.375% bonds due 2033 are down about 0.575 points, or 0.575 cents on the dollar, to 75.175, according to MarketAxess.

It is foolish to believe the Fed's monetary tightening cycle won't bring any downside to corporate America, and it's easy to say strong earnings can't last forever. But the music may play on for a while longer.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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