Will earnings punch a hole in the stock rally?

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Bulls may be kicking up their heels with the market at new highs, but the direction forward is less certain as the so-far mixed corporate earnings season plays out.

With just several dozen reports in hand, investors were dealt two tech bombshells after the closing bell Thursday, when both Google and Microsoft missed estimates on the top and bottom line. Google instantly plunged 5 percent, and Microsoft was down more than 4 percent. Nasdaq futures turned lower in after-hours trading, and S&P futures pared their gains.

(Read more: Microsoft, Google disappoint; shares pay the price)

The tech sector's earnings performance has been the most checkered so far. On Wednesday, IBM beat on earnings, but revenues declined. Though shares of the Big Blue ended up rallying, Intel's stock had sunk after it reported numbers Wednesday that were short of top- and bottom-line estimates.

As of Thursday morning, about 81 companies in the S&P 500 had reported earnings; 70 percent of the reports had come in above earnings estimates, but 51 percent missed on revenues, according to Thomson Reuters.

"I think the story is the financials are still running away with the earnings season, leaving the rest of the index behind," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities.

It's too early in the earnings season to have a true picture, she said. "There's no real confirmation or lack of confirmation of expectations so far. It's kind of back and forth. The market is breathing some kind of sigh of relief that Bernanke didn't step on their toes and earnings have not been undeniably negative or undeniably positive. That's enough to keep the market afloat."

The Dow burst to a fresh high Thursday morning after an improved weekly jobless claims and surprisingly strong Philadelphia Fed survey pointed to an improving jobs picture and manufacturing sector. The Dow closed off its highs but still at a record 15,548, and the S&P was up 8 to a record 1689. The Nasdaq was up 1 at 3611.

(Read more: New orders fuel Philly Fed surge)

"The default direction is still higher so you have to get profoundly negative news to disrupt that trend," Adams said. "There's not a lot to really boost confidence substantially, either, which suggests we're in a fits-and-starts environment until something breaks. And it's probably clear it's not going to be the Fed right now. Now that Bernanke's speech is done, it takes a backseat to the data—earnings and the economy."

Fed Chairman Ben Bernanke wrapped up a second day of Congressional testimony Thursday. "What we do know with more certainty is that in September the Fed is going to slow its asset purchases," said Barry Knapp, head of equity portfolio strategy at Barclays.

Bernanke reaffirmed the Fed would be watching economic data but that it could reduce its $85 billion in monthly bond purchases by the end of the year. The Fed's discussion of tapering has taken rates higher, off the low of 1.62 in early May to as high as 2.75 percent this month.

(Read more: Moody's upgrades US to 'stable,' keeps Aaa rating)

"I never thought earnings by themselves were going to be that significant," Knapp said. "I think there's some things going on underneath the surface that are interesting. If you look at the markets and how they're reacting to the whole Bernanke thing, the little rebound in the Treasury market has run its course and it will probably start bleeding again. That is not surprising to me."

Yields rose Thursday as investors sold bonds, and the 10-year Treasury yield crossed back above 2.5 percent. It traded in a range from 2.46 to 2.53 percent late in the day.

Knapp expects stocks to struggle against rising rates, which will also take their cue from an improving economy, apparent in the fact oil is at 16-month high and manufacturing data is picking up, he said.

"The U.S. looks like underlying momentum is improving. On the surface, it's good news for the equity market, but that implies tighter Fed policy," he said. "As the data gets better, all of a sudden the market wakes up—the equity market in particular—that the Fed is going to taper purchases. The market comes back under pressure," he said.

Knapp said the market will react to the tightening policy in selling waves, as it has in the past.

There are just a few earnings Friday. They include General Electric—significant, as traders consider it a kind of proxy for the S&P because of its exposure to many industries, both domestic and international. Honeywell, Baker Hughes, Whirlpool, SunTrust, State Street and Kansas City Southern also report.

"So far this quarter, domestically oriented stocks have been outperforming," Knapp said. "This quarter, domestic revenues are starting to go up, which makes perfect sense given those stocks have been telling you that for six months. Companies with foreign-derived revenues remain under pressure."

Besides corporate earnings, markets will be keeping an eye on G-20 finance ministers, meeting in Russia on Friday and Saturday. Treasury Secretary Jack Lew will be in attendance.