By Kate Gibson

With the U.S. stock market's recent rise coming on the heels of better-than-expected earnings results, investors are looking to the third quarter with raised expectations that could be difficult to meet.

"We're starting to see guidance get a bit better, and that reflects both the fact that companies are beating estimates in the second quarter and the economy appears to be groping for a bottom here, which allows estimates to drift up," said Charles H. Blood Jr., a financial adviser at Brown Brothers Harriman & Co.

But Blood cautions that year-over-year comparisons for the coming quarter make it a difficult one, given that "last year's third quarter, for all except financials, was good for most everything else."

The dismal third quarter tallied by the financials last year has analysts projecting earnings growth for the sector to soar 276% in the quarter to come, according to FactSet Research.

The consumer discretionary sector is expected to post revenue growth of 2%, while utilities are projected to realizing a small increase of 0.2%.

The remaining sectors are expected to realize declines, with energy earnings forecast to fall nearly 68% and industrials to tally a 37% drop.

Overall, FactSet projects an overall earnings decline of nearly 23% for the S&P's 500 companies.

The bar should be far lower in the final quarter of 2009, when it would be reasonable to start looking for a rise in corporate profits.

"We think the fourth quarter will be up year on year because last year's fourth quarter was such a disaster," said Blood.

Wednesday's trade had the major stock indexes declining on the heels of disappointing economic data, with health care and industrials bleeding the most, and financials fronting the limited gains.

American International Group Inc. (AIG) led the pack, its stock up 62%, with shares of the troubled insurer surging ahead of the release of its quarterly earnings, slated for Friday morning.

Streak ends

On track to snap a four-day winning streak, the Dow Jones Industrial Average (DJI) fell more than 100 points early on, and recovered some to finish at 9,280.97, off 39.22 points, or 0.4%.

The S&P 500 Index (SPX) shed 2.93 points, or 0.3%, to 1,002.72, while the Nasdaq Composite (RIXF) dropped 18.26 points, or 0.9%, to 1,993.05.

With 80% of the market capitalization and three-quarters of the S&P 500 companies reporting, the second quarter revealed what Blood called "back-handed good news.

"Things are going down, but not as fast. That's the second-quarter story."

Of the 364 companies that have reported results, the ratio of positive to negative surprises is nearly five to one, the highest reading in Brown Brothers' data going back to 1994.

The companies reporting so far have surpassed consensus expectations by nearly 13%, a percentage which is modestly lower since last week due to misses from the energy sector, with materials and financials trumping projections by the widest margin.

"Energy had 72% upside surprises so far. However, when you start looking at dollars, the disappointments tended to be the big ones, so the sector as a whole fell short," said Blood.

Revenue is on track to be down nearly 17% from the prior year, with health care the only one of 10 sectors to post positive revenue growth.

While the second-quarter earnings season is drawing to a close, market watchers are still waiting on results from retailers - in particular specialty stores, Blood said.