There was something odd about the last earnings season: while many companies beat Q4 expectations, few were rewarded by material stock upside, yet companies which missed, or guided lower, were violently punished, falling on average in the high single-digit percent range. 

According to some, this is an indication of just how priced-to-perfection corporate America has become. Others pointed out that the fact that much of Q4 earnings took place around the late January market meltup and subsequent historic Feb 5 volatility explosion didn’t help, however, that is not an excuse: as Bloomberg points out, no less than 80% of S&P 500 gains have come during earnings seasons since 2013. Over that period, stocks had a perfect streak of rising whenever results were being reported; the streak ended in February.

Meanwhile, as we previewed last weekend, after the passage of Trump’s tax cuts, the expected annual gain in S&P 500 EPS stands at 18% for the Q1 period, the highest since 2011.

What is less clear, as Bloomberg again notes, is whether clearly even this hurdle will be enough “to restore order in the market.” An identical improvement was under way last quarter when rising bond yields and signs of a trade war sent stocks into a correction.

“If we were to see another negative reaction to very healthy year-over-year growth, that’d definitely be a red flag,” said Charlie Smith, who helps oversee $2.5 billion as chief investment officer at Fort Pitt Capital Group in Pittsburgh. “It’s the old saying, ‘It’s not the news, it’s how the market reacts to the news that matters.”’

Last Friday, Goldman’s chief equity strategist David Kostin doubled down, warning that the downside risk for misses will be substantial: “Positive 1Q surprises would confirm investors’ existing confidence in corporate fundamentals,” Kostin wrote in his latest note to clients. “However, if 1Q results disappoint, fears about decelerating economic activity will compound mounting concerns around trade, regulation, and stretched positioning.”

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