NEW YORK (CNN/Money) - The earnings outlook for the rest of the year is actually shaping up to be...dare we say it...pretty darn good.

Hopefully that declaration won't jinx everything -- there is a month left in the second quarter after all. But the Commerce Department reported on Friday that first-quarter earnings were up slightly from the fourth quarter of last year.

And according to earnings tracking firm First Call, second-quarter profits for the S&P 500 are expected to increase 7.5 percent from the same period last year, the first gain in five quarters.

What's more, analysts are predicting a surge in earnings growth in the second half of the year --for the full year, earnings are expected to jump 15.1 percent.

Of 10 sectors, only energy, utilities and transportation are expected to report earnings declines in the second quarter. Financials, consumer cyclicals (which includes retailing and media stocks) and technology companies are on track to post earnings gains of at least 20 percent. The consumer staples sector (i.e. food, beverage and tobacco) is also expected to have a solid second quarter, with an earnings gain of 17 percent. Each of those four sectors is on tap to post minimum earnings gains of 20 percent for the full year as well.

In addition, companies that have given guidance for the second quarter are sounding increasingly bullish. For most companies, the current quarter ends on June 30 and they will report their results in July.

According to First Call, 35 percent of the 686 companies that have preannounced said that earnings would be higher than analysts' estimates while 40 percent said that earnings would miss. That's a huge improvement from last year when nearly 64 percent of preannouncements were negative and just 20 percent were positive.

Still, the market has been downplaying this and other positive signs. Despite reports on Tuesday that showed an increase in consumer confidence in May and strong home sales in April, the major market indices fell sharply on Tuesday and are all down for the year.

The problem could be that investors are waiting for concrete evidence of a profit turnaround before buying. Dan Rivera, chief investment strategist for American Express Asset Management Group, says that the uncertainty about the economy, earnings and the possibility of more terrorist attacks has caused investors to focus only on the day-to-day gyrations of the market and overlook the likelihood of strong second-quarter earnings in a few weeks. "The market is discounting tomorrow afternoon at 3 o'clock," Rivera quips.

The relatively high price of stocks could also be holding the market back. The S&P 500 is trading at 20.6 times expected 2002 earnings, or about 1.4 times the earnings growth rate forecast for those companies this year. And while earnings growth for technology is expected to outpace that of the entire market, the Dow Jones Technology Index still trades at 1.2 times its estimated earnings growth, a sign that tech issues also remain expensive.

"The market is discounting tomorrow afternoon at 3 o'clock," Dan Rivera American Express Asset Management Group

Other sectors that are expected to post strong earnings gains for the year are also trading at relatively high valuations. The Dow Jones Basic Materials Index has a price-earnings ratio of 29. So does the Dow Jones Consumer Cyclical Index.

But Rivera says sectors such as technology and consumer cyclicals probably won't look as expensive once second-quarter results are reported. He expects analysts to raise their earnings estimates for companies in these sectors as well as in other economically sensitive groups such as financials and basic materials.

Tobias Levkovich, senior U.S. institutional equity strategist for Salomon Smith Barney, wrote in a report on Tuesday that he also thinks investors are ignoring signs of a turnaround. He pointed out that in early 2000 investor sentiment was extremely bullish even though fundamentals were just starting to show signs of slipping. Once companies really started to report lousy numbers, stocks tanked.

Now, earnings and the economy are showing signs of strengthening but investors remain bearish. So if earnings growth in the second quarter and beyond is in fact strong, that could cause the markets to head higher, Levkovich wrote.