With earnings reports for 20% of the S&P in hand, Bob Doll, Chief Equity Strategist at Black Rock, predicts that  U.S. companies will outperform the consensus expectations by 3-4% this past quarter.  However, some companies have announced big positive surprises and others are doing worse than expected—a more mixed picture than in the previous quarter.

Overall, Doll sees a cyclical recovery on track. U.S. retail sales increased 3% in the first quarter. The news on industrial production, credit for commercial and industrial loans, and unemployment claims has been good.

The drags on growth: record gas prices in some areas, Japanese supply chain interruptions, central banks tightening the money supply in China and Europe and the end of QE2.

Doll expects that Congress will move towards cutting the U.S. deficit in two steps: a debt limit increase including some checks on spending, followed by a bigger deal after the 2012 election.

“After two years of pretty aggressive pump priming, asset prices have been inflated and the world economy now appears to be on a self-reinforcing path. It was only last fall that fears of a double dip recession dominated investor mindset,” Doll writes.  But expectations have risen just as the economy is slowing. The outcome will be “more near-term turbulence,” he concludes.

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