Just three of 10 S&P sectors are expected to show positive earnings comparisons. They are health care, consumer staples and consumer discretionary. Discretionary should show a gain only because General Motors was removed from the sector because it is bankrupt, Stovall said.
"I think a lot of people will be listening not only for that earnings declined less than they did in the last quarter ... but what about top line growth?" Stovall said. "We've seen a lot of cost cutting, but sooner or later you've got to start to show you've got top line growth, and you're a viable business."
For the market, it could be a rough period. "You have to give investors a reason to believe that the green shoots are becoming young saplings ... I think it is a bit early," he said.
Stovall said he expects the market to correct by 10 to 15 percent in the not too distant future, and the earnings reports could be a catalyst. "... I think maybe if the earnings guidance is blah, maybe we do get more disappointments, maybe comments about top line growth are just not found. That could be a contributor," he said.
After the sell off, he expects the stock market to move higher into the year end. "We think the year-over-year (earnings) declines will end by the third quarter. In January, when we start seeing fourth quarter numbers, we'll start seeing increases," he said.
Financials will be the most important sector this quarter, and they are one of the first to report. "If we get a feeling like a lot of this toxic stuff is behind us, and we don't have a lot of land mines yet to step in that would be a positive in terms of making people feel better. We are looking for earnings to improve," he said. The financials contributed $0.50 per share to S&P 500 earnings, and they could contribute more than $2 per share in the second quarter, he said.
As far as Alcoa goes, Stovall said it should report a $0.36 per share loss. "I don't think anybody's expecting them to say anything dramatically positive," he said. "I think it's more of a pinching of end use."
Alcoa shares rose Tuesday after its CEO Klaus Kleinfeld said he was optimistic on sales as the Chinese economy and some U.S. industries start to recover. He said China is "clearly out of the woods."
Stocks In The Second Quarter
Cleve Rueckert, a research associate at Birinyi Associates, crunched all sorts of numbers on the S&P 500 stocks for the second quarter. Not surprising when he looked at analysts' upgrades versus downgrades that he found analysts were more actively upgrading stocks at the end of the quarter (after the market's run) than at the beginning. For the quarter though, the upgrades and downgrades were nearly equal, with 245 analysts issuing upgrades and 244 issuing downgrades.
When it came to earnings estimates, however, there were more analysts cutting numbers -- 311 to 181. Companies, too, were more vocal about lower forecasts, with 115 lowering guidance, and only 52 raising it. These comments include quarterly and full year guidance.
"Tech probably is one of the better sectors. As far as the estimate revisions, it's probably the one that stands out the most. Not only did you have more upgrades than downgrades, you had the analysts raising the estimates on those stocks," he said.
Tech had 42 analyst earnings estimate increases, versus 31 reductions. Companies in that sector though provided higher guidance only half as much as they lowered it. The only other sector of the S&P's 10 leading sectors where there were more estimates raised than lowered was telecom.
What To Watch
Talk of a possible second stimulus and concern the economy is not improving worried stock investors Tuesday. The Dow fell 161 to 8163, and the S&P 500 fell 17 to 881. Treasurys mostly rose, but a mixed three-year auction temporarily cut into gains. The 10-year was yielding 3.47 percent.
The Treasury auctions another $19 billion in 10-year notes Wednesday. In Tuesday's 3-year auction, "when it came time for the bidding, it was a little too expensive ... There was a bit of a tail. But there were still good indirects," said Rick Klingman of BNP.
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"A lot is going to do with how the stock market performs in the next 24 hours. If you have a weak opening tomorrow, I think you'll see people participate in the auction. If stocks recover, the auction could be sloppy. Flight- to-quality flows have been benefiting Treasurys in the last 24 hours," Klingman said.
There's not much in the way of data Wednesday. Consumer credit is reported at 3 p.m. Weekly oil inventory data is released at 10:30 a.m., and OPEC releases its world oil outlook at 9 a.m. The IMF World economic outlook is released at 7 a.m.
The government Wednesday could unveil its plan and release names of participants in its Public Private Investment Program plan, which is designed to create a market for banks' toxic assets.
G-8 meets in Italy Wednesday. Marc Chandler, head of currency strategy at Brown Brothers Harriman, said it should be dollar positive.
"I think there'll be nothing about the dollar. They'll probably talk about protectionism and the need to avoid it even though most of the G-8 countries have already experimented with some form of protectionism," said Chandler.
China, Russia and Brazil have made noise about moving from the dollar to a new reserve currency. "The Japanese, the Germans, and the French have made it perfectly clear the G-8 is not the forum for that. Central bankers are not there," he said.
"The Chinese have succeeded beyond everyone's wildest imagination in changing the agenda. A year ago, two years ago, we were talking about how the Chinese currency needs to be more flexible, and how they've got to open up their economy," he said.
But in late breaking news Tuesday evening, Chinese state media said that President Hu Jintao would be flying back to Beijing following rioting in the northwestern region of Xinjiang and will miss this week's G-8 summit. How this will affect the G-8 agenda is anyone's guess.
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