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Taking Pause: Amazon’s Miss on Earnings Front and Center, But GDP Growth Improves

(Friday Market Open) The earnings season, which got off to a rip-roaring start, stumbled slightly late this week as some key companies like Amazon (AMZN) and Exxon Mobil (XOM) fell short of Wall Street’s projections. On a more positive note, the government’s first reading of Q2 economic performance reached 2.6%, a solid jump from 1.4% in Q1.

Shares of Amazon (AMZN) have been powering up all year, but hit a wall in post-market action Thursday after the company reported a huge earnings miss compared with analysts’ expectations. Keep things in perspective, however. Revenue came in above Wall Street’s expectations with 25% growth, and cloud computing — a key segment — performed well, growing 42% year over year. That represented a slight slow-down in growth for that part of the business.

Looking at AMZN’s earnings from a high level, it’s definitely not a good thing to see the company fall so far below EPS expectations, but it probably would have been more worrisome had AMZN missed on its revenue number. AMZN’s decision to buy Whole Foods (WFM) is one sign that AMZN is spending money and investing in its business, and that kind of heavy investment strategy could certainly impact its bottom line. AMZN’s guidance for Q3 was in line with analyst expectations, so the underlying business appears to be healthy.

Starbucks (SBUX) also lost a little of its buzz in pre-market trading after missing analysts’ estimates on revenue and lowering guidance. On a sad note for tea drinkers, the company announced it’s closing all 379 of its Teavana locations over the coming year.

On the energy side, Exxon Mobil (XOM) turned lower after missing Wall Street’s bottom line estimates and beating on the top line. Some of the other key companies reporting include American Airlines (AAL), AbbVie (ABBV), and Merck (MRK).

It might be interesting to watch the health care sector today to see how it responds to the Senate’s dramatic early morning vote against the latest Republican-proposed health reform bill. Health care stocks came under pressure Thursday ahead of the vote. One possible...