For corporate America and Wall Street, the second quarter may be a tough act to follow.

Just as investors were closing the book on second-quarter earnings, Dell Inc drew them back in by accidentally releasing earnings that beat expectations just minutes before Thursday's closing bell.

Despite this minor misstep by Dell, the world's No. 2 personal computer maker, investors reacted to the news the way they did to many other pleasant surprises this quarter -- by hungrily snapping up Dell's stock and lifting tech shares.

This was the pattern throughout the latest earnings period, as a bevy of surprises provided the fuel to drive the benchmark Standard & Poor's 500 Index <.SPX> up 11.5 percent since July 1. The rally lifted the S&P 500 to a 10-month high this week.

Intel Corp , which reported quarterly results that surpassed expectations last month, surprised the Street again on Friday morning by raising its revenue outlook.

But the broader market's initial euphoric response to the news soon fizzled. That left participants wondering: In the dearth of earnings, what will push stocks higher from here?

This market has about as much good news baked into it as it can take, said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

We're at that point now where there is no more good news that could come out that can really juice this market.

For the past week, the S&P 500 rose 0.3 percent, while the blue-chip Dow Jones industrial average <.DJI> gained 0.4 percent. The Nasdaq Composite Index <.IXIC> also finished the week up 0.4 percent.


With just a handful of companies left to report, the S&P 500's second-quarter earnings are projected to decline 27.3 percent from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36 percent decline from the year-earlier quarter at the start of the earnings period, and a 35.5 percent drop in the year's first quarter from the same period in 2008.

Some 73 percent of the companies that reported results beat estimates, well above the 61 percent average for a typical quarter, Thomson Reuters data showed.

Wall Street used the abundance of positive surprises as the catalyst to keep the stock market's rally going.

But it remains to be seen whether the broad market's buoyant reaction can be repeated in coming weeks.

Intel shares rose sharply, and boosted semiconductors, but the market itself struggled on Friday.

And even glittering results from jeweler Tiffany & Co , which reported a higher quarterly profit on Friday in tandem with cost cutting, could not get the market excited.

Analysts say expectations are not as dire as they were when headed into the second quarter. Estimates are for third-quarter earnings to decline 20.8 percent from a year ago. The change in expectations may reduce the impact of positive earnings guidance, which will start to trickle out in a few weeks' time.

I don't think we will get surprises of the magnitude we got in the second quarter, said Hugh Johnson, chief investment officer of Johnson Illington Advisors, in Albany, New York.


Beside deep cost cuts, corporate balance sheets have benefited from stimulus packages, including the Cash for Clunkers auto program and other measures designed to kick-start sales, said Cummins Catherwood, managing director at Boenning & Scattergood in West Conshohocken, Pennsylvania.

Are we just making a lot of money because we had artificial demand placed on top of very low overhead? he said. (The stimulus deals) are sucking sales out of the future. There's no question about it.

Should that be the case, stocks may be vulnerable headed into the seasonally soft September. David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates in Toronto, said car dealership surveys show traffic falling 10 percent from June's already low levels, and late-year growth is not assured.

Weak growth would expose the soft underbelly of corporations that were helped by cutting costs, but are still having trouble with sales. Revenue was down 14 percent year-over-year in the second quarter, compared with a 10.6 percent decline in the first quarter, Thomson Reuters data showed.

Analysts have been quick to point out that corporate earnings will falter without a boost in revenue, which has lagged as recession-weary consumers remain tight-fisted with money.

A lot of the second-quarter euphoria was (due to) some good strategic cost-cutting measures, said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.

There's only so much they can cut, and so now they are positioned well, (but) if we don't get that top-line growth, that's where we could have disappointment.

(Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)