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Q1 Earnings Season Seen So-So Beyond Fed-Fueled Housing

The ongoing housing rebound likely lifted banks and homebuilders in the first quarter. But for the rest of corporate America, expectations are muted for the earnings season now under way.

Analysts collectively expect S&P 500 companies to report Q1 earnings rose just 1.5% vs. a year earlier, according to Thomson Reuters. That's a sharp revision from Wall Street's 4.3% analysts had forecast back on Jan. 1.

That outlook came before Alcoa's (AA) late Monday earnings, which marked the unofficial start to the reporting season.

The S&P 500 stock index shot up 10% in Q1. But it's not because analysts expect great earnings.

Most Negative In 11 Years

Companies have tamped down expectations, with 108 so far offering negative pre-announcements. Only 23 have chimed in with rosier EPS views. That's the most bearish positive-to-negative ratio since Q3 2001 — amid a recession and the 9/11 terrorist attack — according to Greg Harrison, a Thomson Reuters earnings research analyst.

Still, observers expect actual results to clear the current modest view. In typical fashion, analysts have grown more conservative as reporting dates near. Then companies leap over those lowered hurdles.

"There's this whole investor relations business of managing expectations which has become an art form, and therefore has made me very skeptical of earnings estimates," Hugh Johnson, chief investment officer of Hugh Johnson Advisors, told IBD. He still expects growth, though at a more modest pace than Q4's 6.4%, as Europe's credit crises weigh on large international firms and sequestration cuts bite into earnings at home.

Airlines and some technology firms say they're already feeling the pinch from that package of government spending cuts that went into effect March 1.

Just 4% of S&P 500 firms have reported Q1 earnings. As usual, most beat analysts' expectations.

Alcoa late Monday said it earned 11 cents a share vs. views for 8 cents. Revenue fell 1% to $5.8 billion, just under forecasts.

The aluminum giant is no longer widely viewed as a bellwether. Still, it noted rising demand for its versatile metal, particularly in the aerospace sector.

A handful of other S&P 500 companies are on deck this week.

The nation's largest bank by assets, JPMorgan Chase (JPM) reports Friday morning, as does top mortgage lender Wells Fargo (WFC).

Hopes are highest for the financial sector, which has rebounded on an improved housing lending environment and a resurgence of mergers and acquisitions. Analysts forecast earnings in that sector to climb 10.8%, on a 2.9% hike in revenue.

And consumers have been surprisingly resilient. Analysts forecast a 7.8% earnings gain for consumer discretionary firms, with revenue climbing 5.1%. The three homebuilders in that group are expected to put up 271% collective earnings, due in part to continued low interest rates, rising rents and pent-up demand .

The Federal Reserve's near-zero rates and aggressive purchases of Treasury and mortgage securities also have helped builders and lenders.

"Some of those macro themes that were driving that last quarter are still in play," Thomson Reuters' Harrison said.

But sequestration cuts could give retailers a tough time, he notes. Retailers won't be reporting en masse for another month.

S&P 500 technology profits are seen falling 2.5%, with Apple (AAPL) weighing heavily. It's forecast to show a 17% profit decline, Harrison said. The iPhone and iPad maker has faced weaker demand amid rising competition from Samsung and other smartphones using Google (GOOG) Android software.

Industrial and health care profits also likely fell in Q1.

Corporate profit margins are near record highs, so revenue growth is crucial to future earnings gains. But S&P 500 sales have been sluggish. Analysts see revenue climbing just 1% in Q1. Sales climbed 3.6% in Q4, and that followed Q3's 0.8% drop.

Going forward analysts expect some rebound, with sales seen rising 3.6% in Q2 and 5.9% in Q3.