We're at the halfway mark for earnings. Here's the good news...

We're at the halfway mark for earnings. More than half of the has reported as of this morning.

Here's the good news:

1. Guidance for the second half of the year has been steady. Most companies that comment are reaffirming third quarter and full-year guidance.

This is far and away the most important takeaway from earnings season so far and is the main reason the S&P 500 is holding up just short of historic highs.

2. Overall earnings for the S&P 500 in the second quarter are still negative, but not deteriorating. The earnings "narrative" has been that earnings bottomed in the first quarter, are improving in the second quarter, will likely be positive in the third quarter, and show notable improvement in the fourth.

So far, that "narrative" is holding:

S&P 500 Earnings 2016:

Q1: Down 5 percent

Q2 (est.): Down 2.8 percent

Q3 (est.): Up 1 percent

Q4 (est.): Up 9 percent

Source: Thomson Reuters

It's important for earnings to show improvement because after four consecutive quarters of negative growth bulls must be able to point to an improvement in earnings to justify current high stock prices. Without it, it's much easier to argue that stocks are overvalued.

There are other smaller signs of improvement:

1. Not only are companies beating earnings estimates (they typically do), but they are beating the numbers by a larger amount than usual. The companies that have reported so far on average have beaten earnings by 5.9 percent, well above the long-term average of 3 percent.

2. The ratio of companies guiding lower vs. companies guiding higher has been dropping in the second quarter, and is also lower for the third quarter.

What could go wrong with this "onward and upward" scenario? There are four areas of concern:

1. Oil breaks down again. This is the clearest present danger to earnings. The gasoline glut, along with some demand weakness globally, has pushed oil out of its two-month trading range of $45-$50 a barrel and into the $41 range.

This was not supposed to happen. Oil company earnings projections are based on stable oil now that rises gently going into 2017. BP's CEO, for example, is working on assumptions that oil will be $50-$60 going into 2017.

Analysts are projecting that oil companies as a group will turn profitable in the fourth quarter based on this assumption:


Q1: Down 10 percent

Q2 (est.): Down 77 percent

Q3 (est.): Down 52 percent

Q4 (est.): Up 20 percent

Source: Thomson Reuters

If that doesn't happen — if oil is $40 a barrel instead of $50-$60 as we get into the fourth quarter, all of the oil company earnings estimates will have to come down.

This morning, Goldman Sachs said that oil was likely to remain in the $45-$50 range into mid-2017.

And remember, oil is a proxy for global growth, so you are likely to hear from other global companies about slower overseas growth prospects, even if the U.S. economy is strong.

2. Brexit concerns. This is also a very real concern, however European stocks have come notably off their lows. Credit Suisse's CEO said this morning that Brexit "has no impact—yet."

3. China slowdown. Many multinational now get a significant amount of revenues from China, China has been one of the worst performers among world markets this year (the Shanghai Exchange is down 15 percent), though the markets have been quiet lately.

4. Dollar strength. The dollar has rallied significantly since April.

Another issue is the size of the U.S. economic recovery, and whether it will translate into real revenue growth, which has also stalled. Revenues have been flat to down along with earnings for the past four quarters, and there is no sign of a major pickup in capital spending in the second half of the year, at least not yet.