GM's big beat is driving up Q2 earnings

A General Motors worker puts the finishing touches on a new 2016 Chevrolet Camaro at the Lansing Grand River Assembly Plant October 26, 2015 in Lansing, Michigan.
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Earnings update: still moving in the right direction. There have been several high-profile earnings disappointments today, notably Southwest Airlines and Sherwin-Williams, on top of the disappointing revenue from Intel's data center.

But don't kid yourself: the direction of earnings continues to improve, and GM's huge beat ($1.86 v. $1.52 expected) and higher guidance is one of the main factors.

Example: Yesterday, earnings for the S&P 500 were expected to be down 3.8 percent for the second quarter, according to Thomson Reuters. Today, thanks mostly to GM, earnings are expected to be down only 3.3 percent.

That is a big move. If this continues,there is a small chance that earnings could even turn positive.

One big help is that more companies are not just beating, they are beating by a larger amount than usual. Yesterday, the companies that had reported so far were on average beating their earnings estimates by 6.2 percent. Today, thanks largely to GM, they are beating by 6.7 percent.

Again, that is a big move in just a 24-hour period.

The long-term average, by the way, is 3 percent.

Why is all this important? Because the stock market is at historic highs, and to justify these kinds of valuations bulls need to see some kind of improvement in earnings, and that is the narrative so far:

Q2 S&P 500 earnings (ests.)

Q2: down 3.3%

Q3: up 1.3%

Q4: up 8.9%

Source: Thomson Reuters

Earnings going positive — especially if it gets close in second quarter — would be a huge psychological boost, the first year-over-year increase since the second quarter of 2015. So far, the positive momentum — and the lack of earnings reductions for third quarter — is working in favor of the bulls and helping to support the market.

But with only 101 companies reporting (21 percent of the S&P 500), the jury is still out.