Talbot’s (NYSE: TLB) was the one major retailer to report a huge loss this week that blew analyst expectations out of the water. Consensus estimates called for a loss of 66 cents, but earnings plunged by $2.04 as women’s apparel retailers have been among the hardest hit in the retail sector. Talbot’s also issued extremely weak guidance for its fiscal first quarter, leading investors to exit the stock en mass.

While the company has long faced headwinds, it’s not entirely indicative as the industry as a whole. It is a bit of a taste of what’s to come however. Particularly since Wal-Mart Stores (NYSE: WMT) has reported slowing sales recently, it’s a possibly retailers will have an unsatisfactory season ahead.

Expect earnings to be off by as much as 20-30 percent sector wide, particularly with retail sales off by 1.1 percent in March.

At first blush, earnings coming out the banking industry appear positive with both JP Morgan Chase (JPM) and Goldman Sachs (GS) blowing respective analyst expectations of 31 cents and $1.33 out of the water. Goldman Sachs reported blockbuster profits of $3.39 and earnings at JP Morgan came in at 40 cents.

That’s easy to do though when you receive billions of dollars of extremely low cost capital from the government. Goldman Sachs received $10 billion in TARP funding, a fifth of its market capitalization, and JP Morgan received $25 billion, or more than 20 percent of its current market capitalization. And despite the restrictions that TARP money has come to entail, it’s still easy to make money when it didn’t cost anything in the first place.

Citigroup (NYSE: C) also reported seemingly solid earnings, breaking its five quarter losing streak. The bank reported a $1.6 billion profit on trading gains and more favorable accounting policies, though it still reported an 18 cent per share loss for the quarter. That’s a vast improvement from the analyst predicted loss of 32 cents.

What’s much more meaningful is the performance of smaller banks that either didn’t take TARP funding or received very little. For instance take Bank of the Ozark’s (OZRK), which did receive $75 million or almost 18 percent of its current market cap, which beat analyst expectations of 54 cents by a penny.

While it’s true that the bank came under some scrutiny early this year when the New York Times ran a story of how CEO George Gleason has an assistant who draws a salary of $43,432 from the bank it’s a picture perfect, well run smaller bank. Its balance sheet is solid and share prices are down by only three percent over the past year, so it’s a shining example of able management who will be able to repay TARP money in relatively short order. And its earnings aren’t on the back of just $75 million.

One of the best examples though is People’s United Financial (PBCT), which actually missed analyst expectations. Forecasts called for earnings of ten cents per share, which only came in at eight cents, but well up from five cents for the first quarter of last year. But profits were up 77 percent overall and it didn’t even apply for TARP funding.

Admittedly, not all small banks are performing well. Some are in rather dire straights. The vast majority of the smaller institutions that are in trouble are victims or circumstance rather than the effects of excessive risk. Those that survive will go on to improve their offerings as there’s less competition for lucrative wealth management business.

On the other hand, the economic crisis has been a crippling blow to the larger players who are certain to face tighter regulation and slower growth as well as cope with hits to their reputations. It will be a long time coming before they ever find themselves back in a high flying position.

Finally, General Electric Company (NYSE: GE) posted a positive earnings surprise with EPS of 26 cents, a nickel above expectations. The company’s finance division, whose profit was only $1.1 billion or almost 60 percent less versus the same period last year, was the main drag on earnings. Other divisions saw profits slashed, down 45 percent in media and a 75 percent decline in its consumer and industrial segment. But some performed quite well, with earnings up at both the energy infrastructure and technology divisions. Overall net income for the conglomerate was down 35 percent to $2.9 billion, or 26 cents per share, versus this time last year.

Given the reasonable performance under the circumstances and a more than ten percent yield, GE looks intriguing at these levels.

The Numbers

The consumer and producer price indexes were both released this week and both showed the effects of deflation.

The consumer price index fell 0.1 percent in March on a month-over-month basis as food and energy costs declined, with energy prices alone falling 23 percent nationally. The index actually saw a greater than expected 0.2 percent increase. The most notable part of the report though was the year-over-year numbers, with the index posting a drop of 0.4 percent, its first since 1955. Again though, excluding food and energy costs, the index reflected a 1.8 percent increase.

The situation was much the same with producer prices, which fell 1.2 percent month-over-month and 3.5 percent year-over-year in March. But once again, with food and energy costs excluded, the index was flat monthly and up 3.8 percent annually.

But the declines have once again drummed up more talk about long term deflation, which seems unfounded at best. Wholesale prices for consumer goods rose 3.4 percent in the first quarter and commodity prices are creeping up, though thankfully they’re not rising at an all out sprint yet, so it seems unlikely that goods will remain cheap forever. And with signs that the economy is at least stabilizing though not recovering, once the employment situation begins to improve Americans will once again start buying.

Initial jobless claims posted a steep drop, falling 53,000 to 610,000. Continuing claims set a new record though, breaking to 6.022 million workers continuing to draw benefits. That’s a dreary picture for the labor markets, particularly as unemployment benefits are running out for thousands of workers before they’re able to find new jobs.

Interestingly, despite large declines in housing starts and building permits, sentiment is improving amongst home builders. In March, starts fell by 62,000 to 510,000, an 11 percent decline, despite a 20 percent jump last month. That decline is likely to continue, with permit issuance off nine percent to 513,000 last month. 564,000 permits were issued in February.

Despite that, homebuilder sentiment for April improved drastically, jumping from a reading of 9 in March to 14, largely as they expect sales of single family homes to improve strongly over the next six months. So while a reading of 14 is still extremely bearish, that means 86 percent of builders provided negative responses to the survey, it’s good news at least.

So far earnings haven’t been nearly as bad as expected, though we’re still fairly early on in the reporting cycle. Next week is particularly heavy with reports due in almost every industry, so expect the markets to be choppy, especially if we break to a not-so-bad streak as we’ve seen this week.

Speaking Engagements

Friday Market Wrapup are invited to attend the Atlanta Wealth Conference, hosted in a beautiful mountain setting in northern Georgia. This conference has always been a personal favorite of mine, as it’s smaller than most with only 175 attendees.

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