Updated from 5:35 p.m. ET to include commentary from High Frequency Economics on the Tuesday's economic data and latest after-hours share prices.

NEW YORK ( TheStreet) -- Earnings season is finally here and it looks like the Federal Reserve-inspired momentum stocks have enjoyed of late is going to be tested.

According to the latest data from Thomson Reuters, analysts are expecting a 2.3% profit decline from the S&P 500 in the third quarter, down from 8.4% year-over-year growth in earnings in the second quarter. Back in July, the consensus was calling for a 3.1% improvement in the third quarter, so expectations were coming down even as the broad market rallied in the latter part of the summer in anticipation of QE3.

What's possibly more worrying is the level of warnings we've seen so far. To date, more than 20% of S&P 500 companies have pre-announced results and the vast majority of those have offered up negative outlooks. Out of 123 forecasts, 91 were warnings of shortfalls, while only 21 were giving a heads-up on better than expected results and 11 were in-line. The 4.3-to-1 ratio of negative to positive outlooks exceeds both last year's 2.7-to-1 figure and the 3.2-to-1 comparison in the second quarter.

Bank of America Merrill Lynch was fairly downbeat about the third quarter in its earnings preview, noting this will be the first year-over-year decline since the third quarter of 2009 when the United States was stuck in the thick of the financial crisis and that expectations still need to come down further.

"While guidance is not at extreme levels, we do expect trends to remain negative as 4Q expectations remain too high, in our view," the firm said. "Our cautious outlook on equities in the near term is based in part on continued downward revisions, in addition to risks surrounding the fiscal cliff and slowing global growth."

Stagnation on the top line is part of the problem this quarter, B of A said, as corporate America has generally trimmed expenses down to the bone and demand from Europe and China has slowed.

"With cost structures already lean, sales growth is increasingly important for companies' ability to grow earnings," the firm said. "Sales were flat last quarter, and this quarter analysts expect -2% YoY growth, or -1% ex. Financials. We expect the combination of lower commodity costs vs. a year ago, negative operating leverage and a deceleration in buybacks has caused Non-Financials EPS growth to decline more than sales growth."

Still, B of A said it doesn't believe the earnings situation will be disastrous for stocks and noted that the trend in guidance has actually stabilized over the past few months and is "nowhere near crisis levels" despite the worries prompted by warnings from bellwethers such as FedEx ( FDX) and Intel ( INTC).

In the near-term though, it's all about Alcoa ( AA), the first component of the Dow Jones Industrial Average to report each quarter. The aluminum producer is due to report its third-quarter results after the closing bell and the average estimate of analysts polled by Thomson Reuters is for a breakeven performance on a per-share basis on revenue of $5.57 billion in the September-ended period.

Alcoa shares are up a little less than 5% so far this year, but they are down nearly 10% over the past year with the 52-week high of $11.66 coming in late October 2011. While it's the first blue chip to report each quarter, it's debatable how much can be read into Alcoa's performance.

FactSet Research looked at the issue and found an earnings beat for Alcoa qualifies as a good omen for where the broad market heads from here but not much more.

"In terms of performance relative to estimates, about the same percentage of companies in the S&P 500 reported EPS above estimates in recent quarters whether Alcoa reported earnings above estimates or below estimates to start earnings season," the firm said on Friday. "In terms of price change over the last ten years, the S&P 500 has risen about 80% of the time during the next three months following an upside earnings surprise from Alcoa. Following a downside earnings surprise, however, the price of the S&P 500 has moved up almost as often as it has moved down over the following three months."

So perhaps it bodes well that Alcoa has a pretty low bar to hurdle as an in-line performance would be a small loss, its first since the fourth quarter of 2011. Alcoa has beat in the past three quarters but it missed in the three quarters before that, so making predictions is pretty dangerous. For what it's worth, the sell side is bearish ahead of the numbers with 13 of 20 analysts covering the stock at either hold (10), underperform (2) or sell (1).

Check out TheStreet's quote page for Alcoa for year-to-date share performance, analyst ratings, earnings estimates and much more.

Other companies reporting on Tuesday are ADTRAN ( ADTN), EXFO ( EXFO), and Yum! Brands ( YUM)

The economic calendar is light again on Tuesday, headlined by the National Federation of Independent Business small business sentiment survey for September at 7 a.m. ET. The consensus estimate is for a tick up to 93.3 reading from 92.9 last time around. There will also be some data on retail sales with Johnson Redbook's weekly index just before 9 a.m. ET and the ICSC-Goldman Sachs weekly chain-store index due at 7:45 a.m. ET.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, thinks the NFIB survey could come in shy of expectations.

"We expect a pause after last month's 1.7 point rise; a reversal of some of August's gains has already been reported for the two labor components," he noted in commentary released late Monday. O'Sullivan is looking for a minimal tick up to an even 93.0 in the index, which he notes is derived from 10 components.

With technology a big headwind again on Monday, the action in Apple ( AAPL) gets more and more worrisome and it's sure to be market mover for the rest of the week.

An announcement about an iPad Mini may reportedly come this week, and contrary to the run-up ahead of the iPhone 5's launch, the stock has been beat-up of late. Monday's close at $638.17 was the stock's first finish below $640 since mid-August, and it's now down 9.5% since hitting an all-time high of $705.07 on Sept. 21. In after-hours action, Apple dipped down as low as $635.25.

And finally, a big mover after Monday's closing bell was Edwards Lifesciences ( EW). The Irvine, Calif.-based heart valve maker gave a weak outlook for the third quarter, citing the impact of austerity measures in Europe and other factors.

The company expects sales of $448 million in the September-ended quarter, below its previous targeted range of between $465 million to $485 million. Edwards said transcatheter heart valve sales were "below expectations" for the quarter, with "global sales estimated at $124 million, including U.S. sales of $55 million." Wall Street's consensus estimate is for revenue of $476.6 million in the quarter.

The stock was last quoted at $90.50, down nearly 16%, on late volume of just below 400,000, according to Nasdaq.com.

-- 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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