Earnings season is ramping up this week, and a lot is on the line. After a terrible few sessions for stocks, investors will look to corporate results to determine whether the economy actually lost steam in the first quarter of the year.
"There's no doubt in my mind that earnings are going to make or break the market this week," said Anthony Grisanti of GRZ Energy.
Companies as varied as Citigroup, Coca-Cola, Johnson & Johnson, IBM, Google, and Chipotle are set to report. And what increases the drama is that analysts are expecting Q1 earnings to drop 1.6 percent year-over-year. If earnings do actually shrink, then this past quarter will mark the first decline in S&P 500 earnings since Q3 2012.
Of course, that might not happen. Over the past three years, 71 percent of S&P 500 companies have beaten earnings estimates, and the average earnings growth rate has come in 3.1 percent above expectations, according to FactSet. If that trend holds this year, then actual earnings growth rate will be 1.8 percent, points out FactSet senior earnings analyst John Butters.
However, despite the low estimates, the start of earnings season has actually been relatively weak. Just 52 percent of the 29 S&P 500 companies that have reported have beaten estimates, according to Thomson Reuters I/B/E/S.
And just as weak economic data was pegged on the weather in the first quarter, companies have blamed harsh weather for weak earnings. Nearly half of the S&P 500 companies that have released results have mentioned a negative impact from weather, FactSet reports.