The Once and Future Rally

NEW YORK ( TheStreet) -- Turns out, this impressive run for stocks that began back in October -- the fourth quarter of 2011 -- may be an extreme example of thinking ahead.

And if it's going to continue, the bulls need company guidance this quarter to back up heady expectations for much further down the road, namely the fourth quarter of 2012 and beyond, because that's when Wall Street believes the bottom line will start to take off again.

FactSet Research said Friday the blended earnings growth rate for the S&P 500 in the first quarter now sits at 0.0%, or flat, with last year's performance. The firm notes that analysts have been taking down their estimates since the start of 2012, even as the index has rallied 9% this year. Those two counter trends can only co-exist for so long.

"One possible explanation for the rally is that the market is looking ahead to the rebound in earnings growth projected for late 2012 and early 2013," FactSet said. "While analysts are predicting a modest recovery in earnings growth for Q2 2012 (7.1%) and Q3 2012 (4.8%), they are calling for double-digit earnings growth in Q4 2012 (16.2%), Q1 2013 (14.2%) and Q2 2013 (13.1%)."

So with earnings season about to kick into high gear next week, investors may want to put outlooks ahead of actual results.

Digging in on earnings also once again underlines the importance of Apple ( AAPL). FactSet said the earnings growth rate for the S&P 500 drops down to a negative 1.5% if the forecast for the iPhone and iPad maker is removed from the equation. Take Apple's numbers out of the calculations for the information technology sector, and the group's anticipated profit growth goes from 2.9% to a negative 5.2%.

And don't forget that Apple historically beats expectations by a wide margin.

"Apple has reported actual EPS above the mean EPS estimate in 15 of the past 16 quarters," FactSet points out. "For these 15 quarters, Apple has reported an average upside surprise of 23.3%. If Apple reports another upside earnings surprise for the Q1 2012 quarter, it will on increase the company's impact on the earnings growth rates for the Information Technology sector and the S&P 500 as a whole."

Apple, whose shares have jumped nearly 90% in the past year and 54% in 2012. reports its quarterly results on April 24, and Wall Street is expecting a profit of $9.89 a share on revenue of $36.29 billion. The stock hit a new all-time high of $644 on Tuesday but ultimately pulled back, closing the week at $605.23.

All global economic worries and disappointing jobs reports aside, it's a big red flag that the major U.S. equity indices just endured their worst week of the year right at the start of what's expected to be a forgettable earnings season. We could be looking at a once and future rally scenario here: Take profits now and then pay up for the earnings later, when they actually arrive.

At some point, profit growth is going to matter, and there's a long summer (with Operation Twist slated to end in June) between now and the profit surge Wall Street is currently counting on in the final quarter of 2012 and into 2013. A few key warnings and the S&P 500 may be breaking through more than its 50-day moving average on the downside.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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