With the recent rally in stocks looking like it might have stalled out over the past three sessions, many investors are wondering if the upcoming earnings season is to blame. After all, the S&P 500 has lost -9% during each of the last two reporting periods and this one isn’t expected to offer much in the way of good reports.

It is for this reason that those in the bear camp theorize that the current run in stocks is just about over. A CNBC report goes so far as to suggest that worse-than-expected earnings just might be the proverbial straw that breaks the camel’s (er, bull’s) back and triggers another leg down.

As usual, Alcoa (AA) will kick things off Tuesday after the close. As for what to expect, analysts at by Thomson Reuters are looking for profits to come in for the S&P 500 at just $10.37, which is 36.6% below where they were a year ago.

However, investors need to keep in mind that the earnings game is all about expectations versus reality. In other words, it isn’t about the actual earnings being reported, it’s about what the expectations for the numbers are.

It will suffice to say that no one is looking for a batch of good quarterly results. In fact, an abnormally large number of companies have already warned that their numbers are going to be worse than previously expected.

However, this batch of “reduced guidance” in relation to earnings has effectively lowered the bar for the quarter. So much so, that there just might be the possibility of some upside surprises. And given that we haven’t heard much in the way of reduced expectations over the past couple of weeks, the bulls argue that the worst is already baked into the cake.

For example, two months ago analysts had expected S&P earnings to come in at $14.50 per share this quarter. Then a month ago, that number was reduced to $12.73. And as we mentioned above, the expectations are now down to just $10.37, which is a 28% reduction in just two months.

The question of the day then is if companies and analysts have pushed expectations down far enough to where they can be exceeded? If yes, then we can expect the bulls to roar ahead under the banner of “the worst is over.” However, if the numbers have not yet been knocked down far enough, then we might be in for some additional discounting to the downside.

S&P 500

S&P 500