“With a pretty surprising downturn in Europe, June was definitely a leg down for a lot of companies, and China remains weak, and because there’s been such a downturn in commodities and companies have been reluctant to hire, that’s helped them beat on margins,” said Lee. “You’re quelling some of the “margins are peaking” story, because margins are expanding this quarter. You’re going to need accelerating growth next year to make up for the loss of revenue.”

Knapp said the market in 13 of the last 14 quarters has performed well for the first two weeks of the earnings season, before turning lower. Alcoa is always the first of the Dow 30 to report, and it’s earnings release is the unofficial start of the earnings reporting season. “We think part of the reason is the highest quality ones go first,” he said.

The Dow in the past week was up 0.4 percent at 12,822, and the S&P was up the same, at 1362. The Nasdaq gained 0.6 percent to 2925. Friday’s steep losses, however, wiped out the month’s gains for both the Dow and Nasdaq.

“We had two ugly Augusts, and I think this probably will be a third,” said Knapp. “That could set us up for a decent rally, but that’s putting the cart before the horse.”

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