First-quarter 2023 earnings season kicks off this Friday, when Wall Street’s mega-banks release their operating results. We could witness an inflection point for the stock market.

The six largest U.S.-based banks are expected to post weak quarterly earnings and dour outlooks for the rest of 2023. If the numbers are bad enough, a broad market sell-off could ensue.

JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), Wells Fargo (NYSE: WFC), and Citigroup (NYSE: C) are estimated to post earnings declines of 10% or more versus the same year-ago quarter, according to Refinitiv I/B/E/S.

The regional banking crisis that began in March with the collapse of Silicon Valley Bank is expected to weigh heavily on the forward guidance of these half dozen behemoths. As always, bank quarterly performance and full-year outlooks will be closely scrutinized because these numbers are economic harbingers.

Regional bank failures have prompted even healthy banks to tighten their credit conditions, which in turn is driving renewed fears of a recession.

Storm clouds are gathering over corporate earnings. For the S&P 500, the estimated Q1 2023 year-over-year earnings decline is -6.8%, according to research firm FactSet.

If -6.8% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q2 2020 (-31.8%).

Sentiment for Q1 profitability is bearish. As of April 6, 106 S&P 500 companies have issued earnings guidance for Q1. Among these 106 companies, 78 have issued negative earnings guidance and 28 have issued positive guidance.

The number of companies issuing negative guidance is above the five-year average of 57 and above the 10-year average of 65. The number of companies issuing positive guidance is below the five-year average of 39 and below the 10-year average of 33.

The quarter is witnessing the highest number of S&P 500 companies issuing negative earnings guidance for a quarter since Q3 2019 (81).

The information technology and industrials sectors have the highest number of companies issuing negative guidance for the first quarter, at 27 and 16 respectively (see chart).

The stock market is forward looking, of course. So what do analysts see in future quarters?

The consensus projects earnings declines for the first half of 2023, but earnings growth for the second half of 2023. For Q2 2023, analysts are projecting an earnings decline of -4.6%. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 2.1% and 9.0%, respectively. For all of calendar year 2023, analysts predict earnings growth of 1.2%.

Corporate earnings, and the economy, are both decelerating. But the stock market has, so far, shrugged off earnings concerns. The S&P 500 continues to hover above its 200-day moving average.

The main U.S. stock market indices closed mixed Monday. The indices closed mixed again on Tuesday, as follows:

• DJIA: +0.29%
• S&P 500: -0.00%
• NASDAQ: -0.43%
• Russell 2000: +0.80%

Crude oil prices on Tuesday settled about 2% higher; the tech-heavy NASDAQ posted its second consecutive negative session. The benchmark 10-year U.S. Treasury yield rose past 3.42%.

All eyes are on the March consumer price index (CPI) report, due Wednesday.

WATCH THIS VIDEO: Stocks End Q1 on a High Note…Can it Last?

Keep in mind, challenging markets give you the chance to pick up excellent investments on the cheap. The wise investor looks for opportunities during times of adversity.

We’re not enjoying robust economic growth, but neither are we facing another economic meltdown, as we saw in 2020 due to the pandemic. U.S. corporate balance sheets generally remain strong and supported by significant cash hoards.

A recession can be an opportune time to look for investment opportunities. Super-investor Warren Buffett once wrote: “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

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John Persinos is the editorial director of Investing Daily.

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