With so many other factors powering the market these days, this quarter's earnings season could turn into not much more than an afterthought.
Investors already know that corporate America will need a good blast from an economic defibrillator before it can come back to full health, so poor performance from the third quarter is almost a given at this point.
Earnings, which many analysts say are already priced into stocks, will reflect tough times in the third quarter but likely will come in close to very tepid estimates the companies' already issued to brace against the recessionary environment.
"I don't think earnings matter here," says Michael Cohn, chief investment strategist at Atlantis Asset Management in New York. "They're going to affect individual stocks per se, but the overall market has baked in a lot of bad news at this point."
For investors, that's both good news and bad news.
The bad news is the sub-8,000 levels to which the Dow plunged before last week's rebound. The good news is that more and more analysts are now forecasting a market bottom and believe that poor earnings are another contributor to the undervalued state of the market.
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"We've gotten to some pretty oversold levels, we've gotten to levels where we can start to build on," Cohn adds. "If you look at it over a very long period of time, we might be making a massive double bottom with 2002" when the last recession hit.
Surprise to the Upside?
If earnings are to have any impact, it might be if some companies come out with numbers that beat expectations.
"Any upside surprises will definitely have more of an effect than any downside surprises," says Emily Sanders, president of Sanders Financial Management in Atlanta. "In this market, where literally news is made every five minutes and the landscape is changing so rapidly, forward-looking pronouncements will probably have more weight than backward-looking results."
Some of the highlights this week in earnings:
- Monday: American Express, Texas Instruments, SanDisk.
- Tuesday: BlackRock, Caterpillar, DuPont, Schering-Plough, Yahoo!
- Wednesday: AT&T, ConocoPhillips, McDonald's, Merck, Wachovia, Amazon, Pulte Homes, Washington Mutual.
- Thursday: Bristol-Myers, Eli Lilly, Ford Motor, ImClone, Microsoft.
But the feeling is that most CEOs are going to try to be as conservative as possible so as not to set themselves up for disappointments from a challenging fourth quarter.
"Pretty much the whole world is on a conservative track at least until this credit load runs its course," Sanders says. "So I think that companies will get points for conservative positions that they are taking or will take in the future."
Weighing the future
As analysts consider the earnings statement against the ominous signs for the economy, investment advisors differ between the "cautiously optimistic" Cohn and Matthew Tuttle, president of Tuttle Wealth Management, who sees the Dow testing 7,200 before finally hitting a turning point.
"The earnings are going to confirm that the economy's weak for everybody," Tuttle says. "We're probably going to have more banks going under, more bad news, and people are going to look at the Dow over 9,000 and say this is a good point to get out."
Randy Carver, president of Carver Financial Services, thinks most companies will report largely in line with forecasts, but warns that a generally negative mood on Wall Street could push the market lower.
"Positive earnings are going to be minimized and negative earnings are going to be overstated," Carver says. "The markets are looking for more negative news than positive."
Tuttle is short the Standard & Poor's 500 through an exchange-traded fund, the ProShares Short S&P 500 (AMEX: SH) and also is betting on lower returns for long-term bonds.
Sanders says she is both a buyer and seller in the market, selling on rallies and staying away completely from financials.
But both Carver and Cohn says the environment is ripe for investors with a longer horizon.
"You just have to be patient and not be looking one, two, three months down the road. You have to be looking six to nine months down the road at least," Cohn says. "As much as everyone has predicted the demise of the buy-and-hold strategy, that's exactly what you should be thinking of here." For more stories from CNBC, go to cnbc.com.