Some say investors already have such low expectations that markets could easily react positively if earnings just stabilize. Others say, especially in light of the recent mood, that expectations are too high and earnings are going to generally disappoint, taking markets down. Indeed, already almost one-fifth of the companies in the S&P 500 have warned that first-quarter earnings will fall short of targets. But investors are not stupid, and while they would like to see better earnings than they expect, they have no doubt as to how the economy performed in the first three months of the year.

But markets are forward looking and it's the outlook that investors will pay attention to most. This season, probably even more than usual, if the outlook contains any hopeful signs, investors will take the news in with open arms. Can outlooks offer such glimmers of hope? Well, mostly analysts and economists warn that we should expect a few more bad quarters, both for the economy and for earnings. Views differ on how many quarters, but generally earnings are expected to continue to be bad in the second and third quarter, while the economy may bottom in the second half of 2009 and start improving in 2010.

Still, sectors such as health care, utilities, and consumer staples, which aren't as influenced by the financial and economic turmoil, may show better earnings, but only compared to other sectors. They have been impacted by the downturn as well, and only health care is expected to grow a measly 1 percent in profits in 2009. All other sectors will report even worse results and continued earnings pressures. Again, if they could show that they can turn a corner in late 2009 -- and as it is, technology companies (whose profits are expected to fall 31 percent in the first quarter) are already expected to show a sizable rebound late this year as consumer and corporate spending stabilizes -- then tech sector shares could see nice upward drives. Similarly, the materials sector is expected to show gains late this year.

Then we have the nice little gift we got just this past Thursday. Yes, I'm talking about the mark-to-market rule easing, to be entered into effect in the second quarter. This could significantly improve the bottom line of battered financial companies in the coming quarters. While in the first quarter of 2009 financials' profits have likely fallen 37 percent, this could mean that an earnings recovery is in sight, perhaps late this year, with significant gains.

The recent stock market gains in March reflect the belief the worse is behind us as it pertains to the economy and the financial crisis. But the earnings would still reflect what happened in a down quarter. In that sense, this earnings seasons could be a good indicator for investors looking for long-term, solid companies. Companies that managed to become lean-and-mean enough to withstand the recession will be the ones that could emerge as winners once the economy bottoms.