It's a proven fact -- stock prices eventually follow earnings.
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So as we enter second-quarter earnings season, an avalanche of corporate reports will likely set the tone for the stock market for the next six weeks.
If companies report healthy profits, stock prices are destined to charge higher. If earnings are flat or even begin show losses -- look out below. U.S. stocks could tumble.
Either way, investors can expect increased volatility as earnings season kicked into high gear today with JPMorgan Chase (NYSE: JPM).
That's especially true when certain bellwether stocks report results. A bellwether stock, is loosely defined as company that tends to create, influence or set trends.
With that in mind, let's take a look at how earnings season is shaping up along with three stocks that will provide early clues about what might be coming for the rest of the market.
Predicting a Down Quarter for U.S. StocksTypically, earnings season is good for stocks.
Historically, the S&P 500 has rallied 67% of the time during earnings season, posting positive returns of roughly 3%. By comparison, stocks have dropped by 1.46% in between earnings seasons.
But we may not have much reason to cheer this time around.
Wall Street analysts project a 1% decline in second-quarter 2012 S&P 500 operating earnings, according to Capital IQ consensus earnings expectations.
The last time companies were this negative coming into an earnings season was the fourth quarter of 2008, when the financial crisis was wreaking havoc on the U.S economy.