The second-quarter earnings season will be the fourth straight "down" quarter for the S&P 500. However, if you knock out financial and consumer discretionary stocks, the S&P 500's Q2 earnings should rise. That's the good news.

The bad news is that as the financial crisis has deepened, Wall Street has cut its earnings estimates for many stocks. The S&P 500's Q2 earnings are now supposed to decline by -11.1%, which is worse than the estimate of a -7.3% decline back in May.

Despite the softening earnings environment, second-quarter GDP should be positive due to strong exports, robust retail sales in May and 100 million stimulus checks from Uncle Sam. But GDP is looking pretty shaky for the third and fourth quarters. Over 70% of the economy is due to consumers, so if consumers are in a bad mood, the economy will have a tough time.

It may surprise you to learn that the S&P 500's earnings are supposed to rise 13.7% in the third quarter and 59.8% in the fourth quarter. The reason is very simple: It has to do with the enormous write-downs from financial stocks in the third and fourth quarter of 2007. So when earnings are announced in October and next January, the year-over-year comparisons will be very good. These earnings will also help lower the S&P 500's price/earnings ratios from an 18-year low to possibly a 40-year low.