After 'March Madness,' Earnings Season Could Bring 'April Anxiety'

markets earnings
Gary S. Chapman | Getty Images

As first-quarter earnings season kicks off, the overall tone is more bearish than usual and negative company warnings have outpaced positive revisions nearly five-to-one.

For the first quarter, earnings growth is expected to gain by just 1.6 percent, compared to 6.2 percent last quarter, according to Thomson Reuters. The negative warnings are higher than usual - with 108 negative revisions for S&P 500 companies. Compared to the 23 positive revisions, it is the worst pace in 12 years, according to Thomson Reuters data.

(Read More: Short-Term Investors, Expect 'Unpleasantness': Bogle)

"History has shown that actual earnings frequently outpace expectations," according to Sam Stovall, chief equity strategist at S&P Capital IQ. "What's more, analysts are optimistic about forward guidance, based on the expected improvement in the global economic growth trajectory."

However, the high negative-to-positive company guidance ratio and other headwinds could make first quarter, 2013 earnings the trough for the earnings cycle, as opposed to the second quarter, 2012.

"As a result, the uncertainty over the first-quarter earnings growth and forward guidance will probably allow for a seamless transition of tension from March Madness to April Anxiety," continued Stovall. According to S&P Capital IQ, five out of the 10 sectors are expected to post year-over-year gains in the first quarter, led by telecoms (up 9.6 percent) and consumer discretionary (up 9 percent), while energy and industrials are estimated to see the biggest declines of 3.1 percent and 2.5 percent, respectively.

"Common beneficiaries include the low interest rate environment and continued improvement in the overall U.S. economy, while headwinds include more difficult comparisons as first-quarter 2012 year-over-year EPS growth increased 7.4 percent, the uncertainty surrounding the impact of tax increases, the end of the payroll tax holiday, and delayed tax returns," according to a note from S&P Capital IQ.

Barry Knapp, head of U.S. equities portfolio strategy at Barclays, sees earnings growth of 4 percent this year, compared to Wall Street consensus estimates for 8 percent.

For the first quarter reports, Knapp thinks companies have already lowered expectations.

"Like most of the earnings seasons, the bar is low enough for the current quarter. I think guidance will get knocked down… It got marked down during the last earnings season," he said.

And Knapp warned that companies that match or beat their earnings estimates may still see their stocks get hit if they don't make positive comments about the future, as companies are "priced for guidance getting raised."

Citigroup economist Steven Wieting is more optimistic about the first quarter reports, and he expects S&P profits to be up five percent.

"I'm expecting a very strong earnings season statistically...Positive earnings surprises in the first quarter have been stronger than the fourth quarter in ten consecutive years," he said, in a recent interview. "There' seems to be a downward bias in Q4 results and an upward bias in Q1."

(Read More: Beware Strong US Dollar Into Earnings: Pro)

Alcoa's results usually marks the unofficial start to each quarter's earnings season. The aluminum producer posted earnings that topped estimates by 3 cents a share, while revenue was slightly below Wall Street expectations. While the company was once considered a stock market gauge, the Dow component has been losing its accuracy as a bellwether.

"I don't think Alcoa's going to be the be-all and end-all of what's going to happen with the entire earnings season," said Chris Mier, chief strategist at Loop Capital Markets.

Five percent of S&P 500 companies are expected to report results this week. Among the most notable firms, banking giant JPMorgan Chase and Wells Fargo are slated to report Friday.

(Read More: Click Here for CNBC's Full Earnings Coverage)

"People need to focus on the fact that corporations have done a terrific job of managing their balance sheets," said Mier. "Most of them have a lot of cash, most of them have done a great job of maintaining profitability in the face of lower sales and output and so the earnings are not likely to be great, but the long-term picture is what really counts here."

Knapp said the companies that are most likely to disappoint are the ones that benefit from the view the U.S. economy is strengthening. "The sectors that are the most vulnerable are domestically leveraged cyclicals," said Knapp. He also expects some companies could see negative currency impact.

(Read More: How to Prepare for a Spring Swoon in Stocks)

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Questions? Comments? Email us at