NEW YORK ( TheStreet) -- While the smart money is apparently worried about the fiscal cliff, the man on the street seems confident a solution will be reached. Looking at recent data patterns, Capital Economics concluded the U.S. economy "appears to be developing a split personality" as consumers continue to spend fairly freely while businesses keep tapping the brakes. "Households, seemingly oblivious to the scheduled jump in marginal tax rates that will reduce their after-tax income next year, are apparently growing in confidence and boosting expenditure," wrote Paul Ashworth, the firm's chief U.S. economist. "At the same time, alarmed by the looming fiscal cliff and the global slowdown, businesses appear to be slashing investment." Ashworth pointed to the pick-up in retail sales growth in the third quarter and heavy demand for light motor vehicles, sales of which reached a four-year high in September, as evidence that Main Street is feeling pretty flush. Businesses, on the other hand, not so much. "Consumer confidence surged to a five-year high in October, while the growth rate of orders for capital goods fell deep into negative territory in September, for the first time since the height of the recession in early 2009," he wrote. "One small comfort is that this divergence isn't showing up in the import figures. Imports of both capital and consumer goods slumped in the three months to August which, other things being equal, is good for GDP growth." Ashworth expects the reality of the fiscal cliff to become more of an issue for consumers as 2012 winds down. "The outlook for consumption and investment both depend crucially on whether the fiscal cliff is averted or not," the firm said. "The potential tax increases are likely to weigh more on consumption as we get closer to the year-end deadline. If, as we expect, a deal is eventually done to avert the fiscal cliff, however, then we could see a bounce-back in investment early in the new year, as pent up demand is released." Last week's 2%-plus decline for all three major equity indices has been largely erased by this week's drive higher as earnings season has largely been less disastrous than expected so far and there continues to be bright spots in the economic data, such as Wednesday's positive reads on housing starts and builder permits. If consumers can continue to lead the way and the fiscal cliff is avoided, the market could very well get the positive catalyst it needs to surge into the end of the year.
As for Thursday's scheduled news, it's another fairly big earnings day. Google ( GOOG) gets the spotlight treatment here. The Internet search giant is slated to report its third-quarter results after the closing bell, and the average estimate of analysts polled by Thomson Reuters is for a profit of $10.65 a share on revenue of $11.86 billion. Based on Wednesday's close at $755.49, Google's stock is up more than 28% in the past year, peaking at $774.38 on Oct. 5. The company has topped earnings expectations in three of the past four quarters and the majority of the sell side is bullish with 36 of the 43 analysts covering the stock at either strong buy (15) or buy (21) and the 12-month median price target sitting at $850. ThinkEquity previewed Google's results last week while lifting its target to $850 from $735. The firm, which also reiterated a buy rating, is expecting an in-line to slightly above consensus performance in the quarter. "We believe that the overall search advertising environment was relatively healthy in 3Q, that new businesses such as mobile, display, and shopping continues to gain share, and importantly that Google is focused on improving the cost-structure and product road-map at Motorola," ThinkEquity said. "Given an improved environment and new products that we think should directly drive revenue like Product Listings Ads, we reiterate our Buy rating and raising our Price Target to $850 based on 18x our 2013 PF EPS of $47.23." Jefferies, which is also at buy with an $850 price target, expressed its excitement about the company's new paid product search program, Google Shopping. "We see upside as GOOG transitions its previously free product search program into a paid service, now called Google Shopping," the firm said. "Our comprehensive checks suggest robust adoption by retailers as it transitions to a fee-based program (will be 100% paid by Oct. 17), essentially requiring retailers to buy PLAs (aka image-ads). Our latest checks count 2x more retailers listing 50% more PLAs, suggesting GOOG is well positioned for a solid 2H." Check out TheStreet's quote page for Google for year-to-date share performance, analyst ratings, earnings estimates and much more. Dow component Verizon ( VZ) also reports its numbers on Thursday. Wall Street is looking for earnings of 64 cents a share in the September-ended quarter on revenue of $29 billion. Deutsche Bank, which has a hold rating and $42 price target on Verizon, is looking for in-line results from the communications giant but said the stock's valuation with a forward price-to-earnings multiple of 15.8X is still too steep vs. 13.1X multiple of the S&P 500 to boost its rating.
"We expect EPS of $0.64 (consensus $0.64), up 14% YoY, driven by strong wireless trends including a step-up in post paid net adds and stable ARPA growth," the firm said. "In wireline, we believe top line pressures intensified a bit in Business (due to macro pressures), causing some QoQ pressure on EBITDA margin. However, this was likely somewhat offset by further acceleration in Consumer revenue growth due to recent price increases." Also reporting Thursday morning is Dow component Travelers Cos. ( TRV). The average estimate of analysts polled by Thomson Reuters is for earnings of $1.61 a share on revenue of $5.79 billion from the insurance and financial services giant. Microsoft ( MSFT) joins Google, issuing its quarterly report after the close. It's been a busy week for Bill Gates & Co. with the company disclosing pricing details for its Surface tablet and industry reviews (mostly positive) of Microsoft 8 starting to appear. Wall Street is looking for a profit of 56 cents a share in its fiscal first quarter ended in September on revenue of $16.42 billion. Early reporters on Thursday include Alliance Data Systems ( ADS), BB&T ( BBT), Blackstone Group ( BX), Boston Scientific ( BSX), Briggs & Stratton ( BGG), Cypress Semiconductor ( CY), Danaher ( DHR), Fairchild Semiconductor ( FCS), Fifth Third Bancorp ( FITB), Genuine Parts ( GPC), KeyCorp ( KEY), Morgan Stanley ( MS), Nokia ( NOK), Philip Morris International ( PM), Snap-On ( SNI), SUPERVALU ( SVU), and Union Pacific ( UNP). Other companies on the late roster are Advanced Micro Devices ( AMD), Capital One Financial ( COF), Chipotle Mexican Grill ( CMG), E*Trade ( ETFC), Riverbed Technology ( RVBD), Rambus ( RMBS), SanDisk ( SNDK), and Wynn Resorts ( WYNN). Thursday's economic calendar includes weekly initial and continuing jobless claims at 8:30 a.m. ET; the Philadelphia Fed regional manufacturing activity survey at 10 a.m. ET; and leading indicators for September at 10 a.m. ET. And finally, eBay ( EBAY) was slumping in Wednesday's after-hours action after the online auctioneer missed on the top line in its latest quarter and gave a fourth-quarter outlook that includes a fair amount of downside to the consensus. The stock was down less than 1% on volume of more than 4.2 million. The big loser in extended trades though was Mellanox Technologies ( MLNX), whose shares plunged more than 23% to $75.50 on volume of nearly 800,000 after its quarterly report. The company reportedly gave weak revenue guidance on its conference call, according to Briefing.com, which said Mellanox forecast revenue of $145 million to $150 million for the fourth quarter, below an estimate of $156.7 million from S&P Capital IQ. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.