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Traders on the New York Stock ExchangeBRENDAN MCDERMID/Reuters

Expectations are everything. Lower them enough, and you're bound to please people when you exceed them.

This idea certainly applies to corporate earnings: Expectations for first-quarter results have come down to the point where analysts see no profit growth for companies in the S&P 500, year-over-year. That's down sharply from growth of 8.5 per cent in the previous quarter and offers a potential obstacle to the bull market.

Now, with first-quarter results starting to trickle in, it's time to see how reality measures up to expectations – and early signs suggest that it could be a rough few weeks for the market.

Alcoa Inc., which officially kicked off the reporting season on Tuesday evening, is actually a pleasant exception to the trend. Whereas expectations have been sliding for the average company in the S&P 500, Alcoa's expectations increased – to 5 cents (U.S.) a share, up from 3.5 cents at the start of the year. The aluminum producer then cleared this higher bar, with earnings of 9 cents a share.

Unfortunately, results from three other companies are not nearly as upbeat.

Family Dollar Stores Inc. saw its estimated earnings fall to 90 cents a share prior to its release, down from $1.22 at the start of the year. However, the actual result was just 80 cents a share, missing expectations and coming in well below the initial target.

The shares were down 2.6 per cent in afternoon trading, although other things weighed on the stock: The discount retailer announced plans to cut jobs and close stores.

Rite Aid Corp. impressed investors with its earnings of 6 cents a share, beating expectations of just 4.5 cents a share and sending the share price surging 11 per cent. But keep in mind that the expectations had come down from 6 cents a share earlier in the year – meaning that the drugstore chain merely matched initial expectations.

Finally, consider Bed Bath & Beyond Inc.'s fiscal fourth-quarter results, released on Thursday. The retailer met expectations with $1.60 a share in earnings, but only after expectations had been slashed from $1.78 at the start of the year.

Investors didn't take kindly to these results, though, sending the shares down 6.1 per cent. Again, there were some other factors at work here – largely the fact that the company's fiscal first-quarter forecast was for earnings between 92 cents and 96 cents a share, or well below what analysts had pencilled in.

So here we go again with the lower expectations. But given some of the tumultuous reactions so far this earnings season, investors should be cautious. If S&P 500 earnings are indeed flat, the index's high valuation of 17-times trailing earnings will be called into question.

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