Five Things We've Learned From Earnings Season

In what some feared would be a bloody earnings season, Wall Street so far has not merely survived but has thrived as banks largely lived up to lowered expectations and confidence grew that the worst may be close to passing.

Mark Lennihan / AP

Major stock indexes have registered gains of about 3 percent and the battered and bloodied financial sector has staged a turnaround thought impossible as mortgage giants Fannie Mae and Freddie Mac looked at one point to be in danger of failing.

But investors plowed through and market pros have taken away some lessons from what could be a pivotal time for stocks.

1) Living With Lowered Expectations

While there have been companies that have come out with robust figures--Pfizer most recently comes to mind--much of the excitement has come in the form of earnings that weren't necessarily good but rather not as bad as expected.

Citigroup was among the leading examples, as the biggest bank in the US reported a stunning $11.7 billion of writedowns related to credit issues and an overall loss of $2.5 billion--news that lifted the spirits of Wall Street because it beat the already lowered bar. The result has been a nearly 20 percent surge in Citi shares that has coincided with a similar run-up in banks stocks overall.

"The overriding theme is the majority of earnings are beating the muted expectations, which is a good sign for the market," says Charles Massimo, head of CJM Fiscal Management. "The turnaround in the market has to start somewhere, and the first place it is going to start is a reversal of psychology. Beating these muted expectations brings a change to the market as a whole."

Massimo says it's unclear whether the optimism regarding earnings will make a long-term swing for the market, but says an influx of hedge fund money into stocks shows confidence is growing.

"Hedge-fund managers and big-money managers are going to book profits when they see an opportunity to go back into the equity market. You're starting to see speculative money flow out of the oil market and back into equities," he says. "They more than anyone else are looking for the right opportunity. They're going to spot it before the average investor."

2) It's the Oil, Stupid

Credit it all to better-than-expected earnings if you like, but there's a pretty straight line to draw between the plunge in oil prices and the surge in the stock market. The oil-stocks inversion is nothing new, and it's become particularly pronounced as Wall Street has digested both lower losses and the long-awaited drop in energy costs.

The two have proved to be a powerful tandem, like a Batman who has found his Robin.

"Having had a significant drop in the oil price at the same time as various earnings have been disclosed has made a huge difference," says Diane de Vries Ashley, managing partner at Zenith Capital Partners in Coral Gables, Fla. "Other circumstances would not be providing this subliminal euphoria we're seeing. Without that kind of move (in oil) you really can't get people to focus on anything but, frankly, their gas tanks."

De Vries Ashley sees this round of earnings more closely reflecting reality, something needed from a market that was riding an untenable wave for too long.

"It's very hard to sit back and say 'I'm only down 57 percent from last year.' Think about that for a second," she says. "Your cup is half-empty and half-full simultaneously. It's really quite an accomplishment with a sleight of hand."

CONTINUED: The Consumer Gets Pinched

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