For many investors, the COVID era was too noisy to make tracking corporate performance anything better than a waste of time. Now, at last, the shocks have receded far enough in the rear view that we can finally start meaningfully weighing quarterly results again.

And one of the biggest patterns I’m seeing this season revolves around the way strong and weak sectors tend to balance out. In any economic environment, Wall Street usually picks a winner and a loser on the extremes . . . and a bunch of companies in the middle.

We’ve already heard from the biggest losers. The banks are on track to report 25% lower earnings than they did last summer as the Fed’s hawkish pivot bends their margins and recession fears drive billions of dollars into bad credit reserves.

On that level, this season is a disaster. If it weren’t for the banks, we’d be looking at solid 12% year-over-year growth on the S&P 500. Given where stocks trade now, that’s the kind of expansion curve that normally inspires confidence that a year from now our holdings will be worth 10-12% more than they are today.

But with financial stocks weighing in at about 13% of the S&P 500, their pain can’t be ignored. If you buy the entire index, you have to swallow the weakest sector and hope the rest of the market is strong enough to overcome the drag.

And yes, the rest of the market is building strongly enough on last year’s results that the S&P 500 as a whole might squeak in with 5% growth this quarter . . . not really inspirational but far from a sell signal. Either way, Wall Street has already factored in a bad season for the banks. We were expecting this.

Until we saw the numbers, the real threat was that the most aggressive interest rate spike in decades would multiply the pain well beyond all our most careful calculations. A deep enough decline here would have triggered 2008 flashbacks and upset the delicate math holding up the market as a whole.

That looks unlikely now. Our projections were mostly on the money . . . at worst right now, maybe the banks will end up with 25.3% less profit this year instead of the 25.1% slump we anticipated. The extra 0.2% is literally a rounding error.

And when the apocalyptic scenario evaporates like that, investors tend to buy the dip in relief. That’s what’s happened here, with financial stocks surging 3.5% since the first banks reported. We aren’t actively bullish on the banks until they actually start growing their businesses again, but all the ambient fear made them cheap.

Even a company in mild decline is worth buying if it’s priced for the end of the world and the world fails to end. I think the banks will stay roughly on this track for the remainder of the year. They aren’t a buy . . . but they aren’t a sell either, leaving this 13% of the market likely to trade in a range until the earnings trend changes.

Everything Revolves Around Oil

Then there’s the strong end of the barbell, and by that I mean the energy sector. The old dichotomy between “pandemic” stocks (mostly technology) and everything else is over. The world now revolves around whether a business is driving inflation or suffering from the Fed’s efforts to get prices under control.

That’s the barbell. And nothing is more central to the current inflationary spike than fuel prices. ExxonMobil (XOM) and Chevron (CVX) report next Friday morning. They account for 45% of the sector between them, so this is going to be a critical day.

If they hit their marks, they can single-handedly raise the earnings curve for the entire market. I’m counting on XOM to raise the bottom line 250% from last year. CVX could easily report 200% growth.

But it’s a double-edged proposition. If either company fumbles, odds are good their smaller counterparts aren’t going to do as well as expected. And just as the banks are really the only sector holding the market back, these are really the only stocks pushing the market forward right now.

We’ve already watched the banks hit the target. It was a low bar, but at least they didn’t disappoint.

Big Oil needs to hit the target as well. While these stocks have come a long way this year, they’re still only 4% of the S&P 500, which means their performance needs to be extremely exaggerated to bend the larger trend one way or the other.

A lot of bend is already factored in here. If we took energy out of the math, we’d be staring at a full-fledged earnings decline this quarter. That’s the recession scenario. At best, it justifies holding stocks for another 6-9 months before year-over-year growth turns positive again.

Given the mood, I think a lot of people would view that situation as a sell signal. For now, I’d rather nibble at the banks after their quarterly numbers . . . but Big Oil is off limits until Friday morning provides clarity.

What About “Tech?”

We’ll talk a lot more about the tech stocks next week as they report. My executive summary is that it’s time to stop lumping the usual suspects into a single bucket because they’re all extremely different companies . . . and following different trajectories.

Tesla (TSLA) is literally the oil stock of the group right now. Inflation at the gas pump feeds its business and after a rocky year earnings growth reported this week was spectacular. This is the kind of experience people usually associate with “technology.”

But TSLA is officially a consumer stock now. So is Amazon (AMZN), which is on track to behave a lot more like the banks. Earnings are under pressure there. We’re braced to see the bottom line drop as much as 80% from last year . . . and if the deterioration isn’t that bad, we could see a relief rally.

Fellow “consumer” tech giant Netflix (NFLX) leads the way. I’ve already talked about what their numbers mean for the stock, but for all practical purposes the hyper-growth days are over here.

In the communications group, I’m not looking for any joy from Meta (META) and even Alphabet (GOOG) could be swimming a little too hard against the current after last night’s disastrous ad numbers from Twitter (TWTR) and Snap (SNAP).

TWTR was priced for disaster so a little relief was warranted. SNAP wasn’t. And if GOOG defies the trend, we’ll all cheer.

And then there’s Apple (AAPL) and Microsoft (MSFT). They’ll probably hit their numbers, using all the accounting expertise at their disposal to make it happen. Will we cheer? Probably not. Will we relax a little in relief? Probably.

MSFT is up Tuesday night. AAPL reports Thursday night. I’ll keep you posted.