Earnings deluge could support new index highs

Investors will eye more earnings amid the possibility of a breakout in stocks to record levels on Thursday.

On Wednesday, positive reaction to earnings and other corporate news drove stocks higher. The Nasdaq closed up 21 points at 5,035.17, within 15 points of its all-time closing high of 5,048.62. The Dow Jones industrial average closed up 89 points at 18,038.27. The S&P 500 closed up 11 points at 2,107.96, within 10 points of its closing high of 2,117.39.

Bespoke Investment Group said in a Wednesday note that the cumulative advance/decline line on the S&P 500 has been holding up, which "implies that there are no negative divergences underneath the surface making the market vulnerable to a bigger decline. That doesn't mean that the market can't fall from here, but instead that the internals aren't suggesting any weakness."

Corporate results will be key to Thursday's index movements. Industrial heavyweights and major tech firms wrap up the bulk of the week's earnings reports, with 3M, Caterpillar and General Motors reporting before the bell, along with PepsiCo and Procter & Gamble. Amazon.com, Google and Microsoft post results after the close.

In a concerning trend, earnings and revenue beats have sharply diverged in the last few quarters.

Reported earnings per share have grown 204 percent between 2009 and 2014; revenue, reported in sales per share, has increased only 34 percent, said Lance Roberts, general partner at STA Wealth Management.

"Earnings have been good because companies are buying back shares," said Marc Chaikin, CEO of Chaikin Analytics. He noted three reasons for the revenue misses:

1. The impact of the strong dollar on international sales, making goods priced in U.S. dollars relatively more expensive overseas.

2. The decline in U.S.-focused capital expenditures that is hitting manufacturing firms.

3. The lack of consumer spending.

The strong dollar is having an impact even in the robust health-care sector, which is in the early stages of earnings season with Eli Lilly's Thursday morning report.

Jeffrey Loo, health-care analyst at S&P Capital IQ said that "FX has been slightly more adverse than we expected but these companies have done a good job by controlling costs."

The strong dollar "will still have an adverse impact going forward," he added.

Analysts noted a vicious cycle from the strong dollar, as weak corporate profits lead to tepid economic growth.

"If we see this slowing trend in corporate profit growth, it does point to slowing capex," said Jack Ablin, chief investment officer at BMO Private Bank.

Capital expenditures have particularly suffered from the plunge in oil prices as energy companies account for about a quarter of total capex, Roberts said.

Read MoreThis is a critical time for crude: Technician

The discrepancy between earnings beats and revenue misses adds to indicators of underlying weakness in the economy, particularly in employment, he added.

His Economic Composite Index, which averages major economic reports, shows a continued downturn after the end of quantitative easing in October.

"Companies are so focused on buying back stock and being very careful with (capital development) because of the slow growth in the United States," said Nicholas Colas, chief market strategist at global brokerage firm Convergex.

He pointed out that the Federal Reserve Bank of Atlanta's GDPNow model forecast real GDP growth of near zero percent for the first quarter, below the consensus expectations of about 1.5 percent. The model mimics the methods used by the U.S. government to estimate GDP growth.

To be sure, CNBC analysis of 30 years of GDP reports found that the first-quarter reports are the weakest, almost to the point of underreporting.

Read MoreWhy is the economy always so weak in the first quarter? Nobody really knows

Some encouraging news on the industrial front could come from economic reports. Markit posts the first read on April PMI manufacturing at 9:45 a.m. on Thursday. Analysts polled by Reuters expect 55.5. The final read on March was 55.7, up from 55.1 in February, according to Markit.

Weekly jobless claims and new home sales are also due Thursday morning.

But beyond any further economic signals investors may get Thursday morning, corporate health remains critical.

"The earnings themselves are slowing," said Nick Raich, CEO of The Earnings Scout.