With the economy still sluggish and the jobless rate stuck at 7.8%, the S&P 500 is showing only modest gains in the fourth-quarter earnings season.
Reports are in from nearly 30% of the companies in the index. S&P 500 earnings now are expected to rise 2.8% vs. Q4 2011, according to Thomson Reuters.
That's better than Q3's anemic 0.1%, but down from the 8% to 9% growth seen in the prior three quarters.
Apple (AAPL) used to provide a notable boost to corporate earnings single-handedly, with a 116% EPS gain just four quarters ago. But on Jan. 23, the tech titan reported its first profit drop in nearly 10 years.
Financials and consumer discretionary sectors are seen leading with double-digit profit gains.
Regional banks such as Regions Financial (RF), Suntrust Banks (STI) and M&T Bank (MTB) are benefiting from stronger home loan activity, says Greg Harrison, corporate earnings analyst with Thomson Reuters. Retail apparel is leading consumer discretionary.
But with more policy "cliffs" coming up over the next few months, growth in Q1 earnings is expected to slow a bit, to 2.7%.
And business spending is expected to stay muted.
"Businesses were paralyzed by the battle over the fiscal cliff, not sure of the outcome," said Jeffrey Kleintop, chief market strategist with LPL Financial. "Now there are multiple cliffs that may keep them from having clarity into their operating environment to feel confident in making investments.
Analysts, as usual, are bullish further out. They expect S&P 500 earnings to jump 10.3% in Q3 and 16.7% in Q4. But if history holds, they will whittle those forecasts substantially as the year goes on.
Companies have "cut costs to the bone," Kleintop said, "which means that they're unlikely to grow earnings at a much faster pace than sales.
Revenue actually fell 0.8% in Q3, with a slim 2.3% gain seen for Q4.
"This has been a sluggish recovery, and it shows up in the sales," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors, who says firms have been good at controlling costs. New hiring has been especially weak.
It's not just the U.S. that is grappling with sluggish growth. Many S&P 500 companies generate a huge share of sales overseas. China's growth slowed in 2012 — though it recently appeared to be picking back up — while Europe is in a recession.
"Sales growth is going to remain sluggish because of the weak global economic backdrop," Kleintop said. He added, "It is very difficult to get 17% earnings growth on 2% to 4% sales growth. S&P 500 profit margins are unlikely to expand much further.
But he says investors may have already factored in more cautious views for the second half of the year. So he doesn't see a big stock market slide if results come in below today's rosy analysts' expectations.
"But I don't think we'll get a big rally" either way, he added.