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Prove-It Time Ahead for Market as Earnings Loom

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Talk of an economic-recovery breakthrough goes only so far. At some point, it has to start showing up on corporate balance sheets.

That will be the great challenge for companies who begin reporting earnings in the weeks ahead. They'll have to show not only that they have pared back costs and employment rolls but also that they are generating the kind of end-demand that will increase sales and ensure stronger growth.

Otherwise, all this talk of interest rates rising for the right reason—sustainable growth—will ring hollow, and the Federal Reserve's crisis-level monetary policy will continue to be counted on to save the day.

"The issue almost all the time is going to be, what about revenue growth?" said Brian Gendreau, market strategist with the Financial Network. "It's going to be an interesting season. What often happens is the market gets focused on macro things like the Fed until earnings come along. Then it shifts back into individual companies."

(Read More: Earnings Season Looks Like a Train Wreck)

Market expectations are low for second-quarter profits.

S&P Capital IQ took down its estimates again this week to 2.8 percent for the S&P 500 bottom-line profit.

As for top-line revenue, expectations are barely positive, at roughly 0.5 percent.

First-quarter earnings grew 5.2 percent, with 66 percent of S&P 500 companies beating analyst profit estimates. Of the 22 companies that have reported so far in the second quarter, 64 percent have beaten estimates.

What Wall Street recognizes as the official kickoff to the season starts July 8, when Dow component Alcoa reports.

Stocks have been the beneficiary of a bad-news-is-good-news meme in which economic and earnings weakness have been met with more Fed easing.

(Read More: Why the Fed Might Hike Rates Sooner Than You Think)

That formula would be weakening, though, as the central bank publicly ponders when it will stop the zero interest rates and $85 billion a month in bond-buying.

"Second-quarter earnings season is just around the corner, and we think it will be more critical than normal," said Adam Parker, chief market strategist at Morgan Stanley. "Why? Because unlike earlier this year, we now think good is good and bad is bad, meaning the fundamentals will be in focus."

One particularly worrisome aspect is the large number of negative pre-announcements this season—about seven to one, the worst since about the same time in 2009.

While it's normal for corporations to tamp down expectations heading into earnings season, the volume this quarter has drawn attention.

(Read More: For Stocks, Last 6 Months Could Be Tough to Match)

"If we get any kind of disappointment in terms of revenue and earnings growth, it will be problematic," said John Stoltzfus, chief market strategist at Oppenheimer. "The consensus estimates have been brought down enough to realistic expectations that we'll probably not have a bad earnings season, but we'll probably see modest growth like the first quarter."

With the stock market coming off a 13 percent gain on the S&P 500 and its first negative month of the year, this might be time when the market takes its lumps for not showing real sales growth.

But Gendreau said the punishment is more likely to be meted out on a company-by-company basis. Multinational companies getting hurt by falling demand in Europe and Asia likely will take the biggest hit, he said.

"They'll get penalized," he said. "I would expect there's going to be a little more skepticism this time around."

—By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.

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