Five Q4 Earnings Reports to Watch

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Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, believes infrastructure spending will rise due to government stimulus plans. However, he adds, "People are getting way ahead of what this means for stock prices." The rally could fizzle based on very weak results from late 2008, he says.

The earnings reports and outlooks from infrastructure companies will be a key test of whether they can maintain their momentum. Caterpillar reports earnings on Jan. 26.

3. IBM (IBM)

IBM results, due Jan. 20, will test a key proposition: Can the brightest parts of the stock market continue to deliver stellar results despite the tough economy?

IBM may be a contrast to another tech giant, Intel (INTC), which warned on Jan. 7 that sales dropped 23% in the fourth quarter. In 2008, "consumer spending dried up and it appears to have had a much more significant impact on Intel than IBM," King says.

Analysts expect IBM to boost earnings by 10% in the fourth quarter, with sales down a modest 1.8% for the quarter.

"We have always believed in IBM's ability to withstand the economic crisis and deliver better performance than its peers," said First Global strategist Devina Mehra in a Jan. 9 research note. But though IBM may outperform its peers given its "robust business model that provides a steady flow of recurring revenues," Mehra warned the tough economy won't entirely spare IBM.

4. Johnson & Johnson (JNJ)

Given the weak economy, many investors have fled riskier stocks for the safety of the consumer staples and health-care sectors. Past recessions have shown that even cash-strapped customers continue spending on necessities like medical supplies and food. But how secure are those supposed safe havens in this slowdown?

Johnson & Johnson's results, expected Jan. 20, will be an important test.

Rutherford is among the investors who have embraced a more defensive strategy in the past year by buying staples and health-care stocks. "We're going to want to see that they're holding up," he says.

According to Reuters, analysts expect J&J to boost fourth-quarter earnings by 4.5% and to keep revenues flat. Even a slight uptick in sales might cheer investors. "Especially through these tough times, I'm pretty thrilled with that stability," King says.

If earnings from staples and health-care companies disappoint investors, the effect on the stock market could be severe. These companies "are the backbone, the underlying strength of the economy," Merrill says.

5. Exxon Mobil (XOM)

Expect little good news from energy companies like Exxon Mobil. A year ago, Exxon and rivals like Chevron (CVX) and ConocoPhillips (COP) were enjoying steadily rising energy prices and record profits. The collapse in the price of oil and other commodities has devastated the earnings outlook for one of the stock market's largest sectors.

"Depending on how much [energy earnings] fall, they're going to have the single biggest impact on earnings," Merrill says. Stovall predicts "a sharp reversal of fortune" for the energy sector, which should see its first decline in earnings growth since the fourth quarter of 2006.

Early signs are not encouraging. On Jan. 8, Chevron warned its fourth-quarter earnings will be "significantly lower" than the previous quarter. Exxon and Chevron both report earnings on Jan. 30.

Steverman is a reporter for BusinessWeek's Investing channel.