1. Estimates already slashed. Since the start of 2013, Wall Street has cut profit forecasts in half for the final quarter of 2013. Analysts now expect 7.8 percent growth, down from 17.6 percent on Jan. 1 and 11 percent on Oct. 1. In short, the bar companies must hurdle has already been lowered.
2. CEOs more cautious. "Corporate leaders are very unsure about the outlook," says Alan Skrainka, chief investment officer at Cornerstone Wealth Management. "Setting low expectations is the best way to avoid a (profit) disappointment later." Stocks tend to perform better when a company tops profit forecasts.
Mark Litzerman, equity research manager for Wells Fargo Private Bank, notes that CEOs have been issuing more negative guidance in recent quarters. Indeed, four of the 10 most-negative profit pre-announcement seasons have come in 2013.
3. It's still a Fed-driven market. Stocks have been driven by the Federal Reserve's easy-money policies the past few years. And while CEO profit warnings are worrisome, "an earnings disappointment will be transient if the Fed waits until March to taper,"or reduce its monthly bond purchases, says David Kotok, chief investment officer at Cumberland Advisors.
4. U.S.companies are strong. Sure, CEOs are cautious, but U.S. companies have posted record profits every year since 2011. "Although companies' earnings may slow they're still making a ton of money and cash flow is even better," says Neil Hennessy, chief investment officer at Hennessy Funds.
5. Profits to improve. "I think we'll get some modest improvement in earnings in 2014," says Bob Doll, chief equity strategist at Nuveen Investments. Profitability will get a boost from consumers that feel richer due to rising stock and home prices. He also expects U.S. companies to spend more and sees stronger growth in Europe and China.
—By Adam Shell, USA TODAY.