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This is how ugly Q1 earnings could be: Analyst

The precipitous fall in earnings expectations for the first quarter has been "stunning," and the post-March picture is not looking good, S&P Capital IQ's Mike Thompson said Tuesday.

"Right now we're looking at down almost 3 percent [year over year] for the quarter. Most of that is energy, which has continued to degenerate, down almost 63 percent," he said on CNBC's "Squawk Box."

Analysts are widely expecting S&P 500 companies to post their first year-over-year decline since the third quarter of 2012. U.S. markets struggled in the first quarter as investors worry over the impact of falling oil prices on overall earnings and the effect of a strong dollar on multinational companies, whose products are more expensive in foreign markets when the greenback firms up.

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The S&P 500 is up 1.3 percent for the quarter to date, while the Dow rose less than 1 percent. Tech and midcap stocks have outperformed, with the Nasdaq and Russell 2000 up better than 4.5 percent in the first three months of 2015.

Thompson noted that companies typically lower the bar about 2 to 3 percent ahead of earnings season to set up positive comparisons, so EPS growth will likely be flat at best.

"Even if you get that surprise factor historically of about 3 percent, that puts you just above zero. These are not good numbers. I don't care how you stack them up," he said.

Earnings are not the only trouble spot, he said. Investors are staring down a shift from a 3 percent revenue growth quarter to one in which sales growth will be down 1.5 percent.

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"Broadly, revenue trends are negative, earnings trends are negative, and even profit margin trends are negative," he said. "The only thing that seems to be elevated these days are valuations, which is a little bit disconcerting."

Stripping out the energy sector, which has been battered by plummeting oil prices, earnings could achieve growth of 5 percent, compared with a historical norm of about 7 percent, he said. With U.S. equities trading at about 17 times next year's earnings, valuations are now out of line with earnings growth trends.

"That's why it goes beyond energy here," he said.

Macroeconomic factors—including currency, oil and central bank policy—had an outsized impact on markets in the first quarter, to the detriment of the United States and the benefit of Europe, said Michael Zinn, senior vice president of wealth management at UBS.

However, he still sees opportunities on both sides of the Atlantic.

A string of health care mergers on Monday fueled a market rally—a sign that U.S. markets have entered a later stage of recovery, Zinn said. "I think that's been great for returns, particularly the health care sector."

The next test for U.S. equities, Zinn said, is whether American companies continue to report "decent" earnings, excluding energy firms. Zinn also sees theFederal Reserve waiting to raise interest rates if the dollar rises too quickly or economic reports come in too low.

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Meanwhile, the European Central Bank's stimulus program—which drives down the value of the euro—is creating opportunities in the continent's equity market.

While it makes sense to hedge investments in Europe against a further decline in the euro, Zinn cautioned against going overboard. The currency has already moved sharply lower, and a rebound could negate the value of hedging.

Still, he said, investors can find affordable ways to hedge because the strategy is largely a function of interest rate expense, and interest rates are near zero or negative in much of Europe.

"They actually theoretically could pay you to hedge, so we think hedging is an important part of the international exposure," he said.