Confession Season Bodes Well for Fourth Quarter

The consensus among analysts is for second-quarter earnings to grow by 22.4% in the fourth quarter, which would be the most impressive growth since the first quarter of 2000. But earnings are expected to decelerate in the first half of this year, with analysts calling for a 15% gain in the first quarter and 13% rise in the second.

Owen Fitzpatrick, head of U.S. equities at Deutsche Bank Private Wealth Management, isn't concerned about this slowdown, because he said growth will remain strong and estimates still are moving higher. His fear is that stocks retreat in the second half of the year, when earnings comparisons get much tougher.

But Peters believes a selloff could come sooner than that. "Sometimes when people don't hear warnings, they think things are going to be much better than expected and they start to price that in," he said. "Just because you don't hear warnings doesn't mean you won't get a correction."

On Monday, stocks hit their highest level in almost two years, thanks in part to optimism surrounding the upcoming earnings period.

James Luke, portfolio manager at BB&T Asset Management, said that while earnings should be strong in the fourth quarter, many firms likely will issue conservative guidance. "We're getting a lot of mixed signals in the economy," he said. "We have a lot of uncertainty about interest rates, the direction of the dollar and how inflation, or the lack of it, is affecting industries."

Still, Luke doesn't think this caution would be enough to prompt a decline in the market. "We're in an environment where the economy continues to make progress, inflation is not a problem, and interest rates are expected to remain generally low. All this is very good for earnings."

One place to look for very strong fourth-quarter earnings is in the materials sector. Despite having a high negative-to-positive preannouncement ratio, the group is expected to post profit growth of 47% in the quarter. "This sector is the most sensitive to the economy and most leveraged because it has high fixed costs," said Hill.