Earnings expectations are sky high, but markets haven't fully caught up to the forecasts, according to one market watcher.
"We might have a little bit more to go," said Doug Gordon, senior portfolio manager at Russell Investments.
Gordon, speaking to CNBC's "Trading Nation" on Wednesday, said the hangover from trade war threats and the possibility one could still arise have kept stocks from realizing the full potential of an earnings boon.
The tug-of-war between earnings optimism and trade war fears was best seen in the banking sector, Gordon said.
"To a certain extent the banks kind of ran up a little bit and you maybe got a little bit of selling on the news because it was so expected," he said. Investors had been fully able to price in earnings expectations because "tariffs don't as materially impact the banking sector."
The financials sector has seen 28 percent blended earnings growth this quarter, second highest among S&P 500 sectors. Since the sector kicked off earnings last Thursday, the Financials XLF ETF has dropped 1.5 percent.
"Some of the others [outside financials] are maybe where some of the headwinds have been tied to exogenous risk, policy risks, that sort of thing," Gordon said.
Those stocks that were impacted by trade uncertainty could play catch-up as profit forecasts become reality, he said. Earnings estimates surged earlier this year.
"We saw this big ramp-up with respect to U.S. earnings expectations driven by, of course, tax reform. Also, think about the weak dollar that we had in the early part of the year. That also elevated earnings expectations," Gordon said. There is "modest upside still to go in terms of actualization of that."
Analysts surveyed by FactSet expect nearly 19 percent earnings growth on the S&P 500 for the year. That would be its strongest annual growth since 2010. Earnings are forecast to slow to 10 percent growth in 2019 and 2020.
Companies in the crosshairs of trade negotiations could also use the earnings season to shine a spotlight on the potential for economic harm, Gordon said.
"You've got really the bully pulpit for management where they can come out and use this as a lobbying opportunity to talk about what might be the outcome or impact of trade restrictions and tariffs," he said. "I think we'll hear a little bit of that in guidance."
Gordon shares their reason for concern.
"When I think about the trade war and what its potential impacts are, it's a case where if it really goes wrong, it's a catastrophic event, it's an end-of-cycle event, but low probability," he added.
It's still early in the first-quarter reporting season with just 10 percent of S&P 500 companies having released reports. Of those, 79 percent have reported profit above consensus and 12 percent below, according to Thomson Reuters estimates. The energy sector has contributed the largest earnings growth at 71 percent.