The Dow was up 75 Tuesday at 18,161, while the S&P 500 rose 13 at 2,139 and the Nasdaq jumped 44 at 5,243.
"It typically happens when you head into earnings reporting period that you have a dip because of some negative preannouncements," said Sam Stovall, chief investment strategist at CFRA. He said earnings can then become positive catalysts for stocks, and earnings have proven to be better-than-expected in the last 18 quarters. "If history repeats itself, last quarter we were up 3.3 percentage points. If we get that similar improvement, we could see earnings up 2.5 percent."
That's significant since Stovall said earnings were expected to be negative in the third quarter, for a fifth quarter. But now, with the combined expectations and actual results from S&P companies that have reported, they are expected to be down just 0.4 percent, basically flat, and could easily rise into positive territory.
Even though the earnings recession could be ending, it doesn't mean it's a great time to buy stocks, Stovall said. He said according to history, the best time to buy back into equities during an earnings recession is after the second consecutive quarter of year-on-year declines. The average earnings recession has lasted 4.4 quarters and troughed 2.6 quarters into the recession.
Waiting to buy equities until the final quarter of the recession, however, has been seen to provide sub-par returns, he said.
"Specifically, the S&P 500 rose 1.2 percent, 1.6 percent, and 2.3 percent in the three- six-, and 12-months, respectively, after recording the final negative quarter during EPS recessions, as compared with S&P 500 average returns of 2.0 percent, 4.1 percent and 8.5 percent during all such three- six-, and 12-month periods," he wrote in a note. The market performs even better after the second quarter of a decline. Three months later it is up 2.1 percent; six months later up 5.8 percent, and a year later, it averages an 8.9 percent gain.
Stovall doesn't expect a market reaction ahead of Wednesday night's debate, unless there are some new significant headlines. The focus will be on Trump's performance, he said.
"He didn't lose ground after debate number two. Debate number three, the question is does he sound more presidential or does he sound more eccentric. It's really more presidential versus sensational," said Stovall.
On Wednesday, earnings reports are expected from Abbott Laboratories, Morgan Stanley, US Bancorp, St. Jude Medical, Halliburton, Canadian Pacific Railway, Seagate Technology and M&T Bank. Tupperware and Genuine Parts also report. American Express, eBay, Mattel, Kinder Morgan, Tractor Supply, Lam Research and BancorpSouth report after the closing bell.
Fed speakers are also out and about, with speeches expected from San Francisco Fed President John Williams at 8:45 a.m. EDT on diversity in financial services, and Dallas Fed President Robert Kaplan at 1:30 p.m. EDT before the Fort Worth Chamber of Commerce. New York Fed President William Dudley speaks at 7:45 p.m. on New York's economic history.