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What's worrying traders about third quarter earnings

The focus will again be on earnings next week, but, as always, a small number of companies will be in focus.

There's a lot riding on Facebook, which reports Wednesday, because the stock is up 20 percent in the last month on expectations of a strong report. Investors have piled a lot of money into a small group of big-cap tech names. Good news dramatically boosted Amazon and Google, but even the smallest disappointment hurt Apple.

Traders will also be scrutinizing big international companies for the impact of the strong dollar. Procter & Gamble, for example, gets 65 percent of its business outside the U.S. They'll be reporting Thursday. Other multinationals that have already reported have noted significant impact from the strong dollar.

The two biggest energy companies, Dow components ExxonMobil and Chevron, will report at the end of the week, and we all know it's going to be a disaster. Chevron's earnings will probably be down 55 percent. Still, estimates have been coming up a bit recently for themm and they will be scrutinzed for any indication of when the oil slide may stop.

And remember, it's not so much the earnings, it's the guidance for the third quarter that matters. Earnings growth was expected to be positive in the second half of the year, but the expectations for the third quarter are now also expected to be down 2.4 percent, according to Factset. With 40 percent of the S&P reporting, that number should be stronger.

And revenues are even worse, expected to be down 2.8 percent for the third quarter. That's one reason the markets have had so much trouble this week.

What's the problem? Slow growth in China and Latin America is one issue, but also the dollar strength and weak oil has continued into the third quarter. The Fed told us that a strong dollar and weak oil might be transitory, but that hasn't been the case.

Bottom line: growth is proving to be very elusive this year, particularly overseas.

Aside from earnings, watch the market leaders next week. A lot of money is in a small group of banks and biotechs. Banks are holding up, but today is one of the worst days we have seen in a long time in biotechs on the Biogen disappointment. The NASDAQ Biotech ETF is down 4.2 percent today.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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