The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- After a strong first quarter, the stock market, measured by the S&P 500 Index, got off to a weak start in the second quarter with a decline of -0.7% last week. Investors focused on the Federal Reserve's lack of support for round three of quantitative easing in the minutes that were released from the March Fed meeting. As we noted a few weeks ago in our commentary, this is one of the 10 indicators we are watching that might foreshadow another spring slide in the stock market.
The first quarter earnings season runs about four to six weeks, starting around two weeks after the close of the quarter. During this earnings season, we are paying special attention to the breadth of earnings growth, earnings guidance on upcoming quarters, and profit margins.
Below we chart the change in earnings growth rate over the next 12 months for S&P 500 companies. Chart 1: Spikes in Upward Revisions to Earnings Growth Preceded Stock Market Declines
Source: LPL Financial, FactSet Data Systems Source: LPL Financial, FactSet Data Systems, and Thomson Reuters In this environment, those areas of the market able to sustain their profit margins are likely to be rewarded by investors. These sectors may include the information technology and industrials sectors. Companies in these sectors are those that appear likely to generate higher-than-average earnings growth rates in the first quarter. Importantly, the companies that report early in the season are most often not the bellwethers they are commonly thought to be. We may not really know how overall corporate results for the first quarter are shaping up until early May, when about half of the S&P 500 companies will have reported. In each of the past two years, as the last week of April unfolded, the stock market peaked and began to decline 16% to 19% as the back half of the earnings season got under way. We will be watching developments closely to determine if a repeat of that pattern will emerge again this year.