Earnings season may not be as weak as analysts had initially projected, but the bad news is that may not be good enough to cheer investors.
Though this quarter's reporting cycle is not yet a week old, the initial results have been encouraging: Of the 35 companies that gave results last week, the average growth rate was 8.2 percent, well above expectations that corporate profits actually contracted about 2.1 percent.
Numbers at big banks, which are the focus of the early reports, topped expectations and already have given rise to hopes that the rest of the Standard & Poor's 500 companies would follow suit.
"Mark my words, the S&P 500's earnings growth rate will not turn negative during 3Q 2012 earnings season and anyone who says it will has not been following the early reporters very closely, " said Nick Raich, director of research at Key Private Bank in Cleveland.
Maybe so, but initial reaction has been less than enthusiastic to this bit of muted good news.
Last week, the stock market had its worst loss since the summer rally began in early June, penalizing JPMorgan Chase and Wells Fargo even though both Wall Street titans posted record earnings . Investors worried over net interest margins and forward guidance.
Monday's action was somewhat better, with stocks gaining after a seemingly positive report from Citigroup , whose stock has been ripping higher in recent months as the company clears the detritus of the 2008 financial crisis from its books.
In the big picture, the market both may be unimpressed with the future earnings outlook and unconvinced of the initial numbers to get much optimism from early beats.
A clearer earnings picture —and the market's reaction — will emerge this week when about 27 percent of the S&P 500 reports.
"In recent months investors have shrugged off this prospect (of weak earnings) and sought solace in the (Federal Reserve ) and the (European Central Bank ), " said John Higgins, senior markets economist at Capital Economics "But history is not on the side of those who expect the market to continue to prosper once the earnings cycle has turned."
Capital is maintaining a 1, 350 target on the S&P 500 by year's end, a price that would represent about a 5.5 percent drop from the current level.
"Even if we are wrong about a turn in the earnings cycle and the profit share continues to rise, the stock market may still fall if investors become averse to risk, " Higgins said. He compares the current economic recession to the climate following the second leg of the Great Depression in 1937-38 when the winds of World War II "trumped an improvement in profits at home."
"The current weakness of the global economy and a potential break-up of the euro-zone cannot be equated with a world war, " he said. "But they could still put the U.S. stock market on the back foot."
Indeed, continuation of the better-than-expected results is not reflected in analyst sentiment.
Earnings revisions — analysts changing their views up or down on company results — continued to trend negative broadly and in particular for the telecommunications and industrials sectors. Energy stock revisions had been on balance positive but turned negative, with financials and consumer staples leading S&P sectors on the positive side, according to Bespoke Investment Group.
Overall, the trend of five negative revisions to four positive is the worst since 2001, according to Strategas Research Partners.
"Company outlooks for the coming year will be of utmost interest, and we believe that estimates for the fourth quarter and 2013 should come down, which could cause volatility in the near term, " strategists at Charles Schwab said in a report Monday.
Investors are especially focused on the future prospects of banks, which face increasing regulation as the Dodd-Frank rules kick in.
"Financial stocks overall remain historically cheap on book value, but reasonably expensive on earnings, " Fred Cannon, bank analyst at Keefe, Bruyette & Woods, said in a note. "We believe that in this environment forward earning estimates revisions will be key to stock performance."
Analyst revisions could be of particular importance with earnings expected to rebound into the end of the year from the lackluster third quarter.
Analysts earlier in the year also had been forecasting a strong third quarter, then had to temper their expectations as economic growth slowed.
"We believe that the earnings estimate revisions will have a significant impact on financial stocks for the remainder of the year, " Cannon said. "Overall, stock prices have fared better than estimate revisions but have had a close directional impact."
—By CNBC.com's Jeff Cox