While I believe this will be a lackluster quarter, it is a long way from a disaster. Let's look at the estimates: both Thomson Reuters and S&P Capital IQ have S&P 500 earnings estimates up 2.9 percent this quarter. For the past few years, the final number has been roughly 3 percentage points above the number going into the quarter. If this quarter follows historic precedents, earnings growth will be 2.9 percent plus 3 = 5.9 percent.
The historic average, for the past 15 years, is about 8 percent growth, according to S&P Capital IQ. While 5.9 percent is certainly subpar, it's hardly a disaster.
And what about the essentially zero topline growth? That may change too, if we start getting even slightly better economic growth.
That's because acceleration of growth helps boost the topline. Are there signs of that happening?
Nick Raich at Earnings Scout thinks there is: he notes that companies that have reported most recently—those with a May quarter end that posted results last month (NIKE, Autozone, Bed Bath and Beyond, Oracle , Micron, Federal Express) showed some re-acceleration of growth from the first quarter.
It follows that better economic growth could also argue for a multiple expansion.
Remember the key point about the economic "recovery": it's just like the stock market rally of the past couple years. No one believes in it. No one believes the economy can stand on its own without the Federal Reserve's help. If it does, the stock market will be the beneficiary.