NEW YORK (CNN/Money) - Earnings season is upon us.

First, the bad news. Alcoa -- the first Dow component to report its fourth-quarter results -- kicked off earnings season with a big thud Wednesday. Excluding restructuring charges, the aluminum maker posted a profit of 16 cents a share, 36 percent below Wall Street's consensus estimate.

Sales were significantly lower than expected as well. The company reported revenue of $5.06 billion. Analysts were expecting $5.5 billion. Making matters worse, Alcoa (AA: down $2.53 to $21.85, Research, Estimates) never warned. Its stock plunged 10.4 percent on Wednesday.

Even so, there's still a lot of reason to be optimistic about the earnings reports that will begin flooding in during the next two weeks.

Overall, analysts are expecting an 11 percent increase in earnings from a year ago, which would mark the third consecutive quarter of year-over-year earnings growth, following a string of five consecutive quarters of declines.

And Subodh Kumar, chief investment strategist for CIBC World Markets, thinks Alcoa's lack of a warning is an anomaly and there will not be a wave of unexpected earnings disasters.

"Companies and analysts were badly burned in 2000 and 2001. So now if there is any negative news, it behooves companies to get that into the marketplace earlier," Kumar said.

To that end, the number of preannouncements for the fourth quarter is substantially higher than for the third quarter, according to earnings tracking firm First Call. As of Jan. 7, there have been 1,442 earnings preannouncements, compared with 1,076 at a comparable time for the third quarter. So it's not as if companies are clamming up this quarter.

Even more encouraging is that fewer of those preannouncements have been warnings. (See chart at right.)

Chuck Hill, director of research for First Call, says this makes sense because he thinks analysts have done a good job of cutting earnings estimates to more reasonable levels during the past few months -- in other words, current stock prices don't reflect unrealistic expectations.

At the beginning of October, analysts expected earnings for the S&P 500 to increase 20 percent from the fourth quarter of 2001. Now, the consensus is for just 11 percent growth.

Even though estimates have come down sharply, Charles Blood, market strategist for Brown Brothers Harriman, says this isn't necessarily a sign that fundamentals are deteriorating. It's just that the market is finally in touch with reality. And lower expectations should hopefully lead to less disappointment.

"Analysts are not way off the mark anymore, so companies don't have to talk them down," Blood says. "That may change the tenor of the way things are reported without changing the substance." In other words, earnings growth may not be explosive in the quarter, but as long as investors realize that and expect it, that is OK.

In particular, analysts have lowered what had been extremely optimistic forecasts for the financial and technology sectors to more attainable targets. Analysts had expected the financial and tech sectors to post increases of 27 percent and 32 percent, respectively, at the start of the fourth quarter. Estimates have since been reduced to 14 percent and 12 percent.

Kumar says that because estimates have fallen so dramatically for financials and technology companies, those are two areas that he thinks have the best chances of surprising investors with better-than-expected earnings. He says continued cost-cutting will help the bottom line for companies in these sectors.

4Q Earnings Scorecard A look at expected earnings growth for key sectors and the overall market Sector  Est. EPS Growth  Energy  47%  Consumer cyclicals  25%  Financials  14%  Technology  12%  Healthcare  9%  Consumer staples  6%  S&P 500  11%   * As of Jan. 7  Source:  First Call

To be sure, there's still a lot of uncertainty about the health of the tech sector. For example, Gateway (GTW: down $0.21 to $2.96, Research, Estimates) was being blamed for a tech selloff on Wednesday. The PC manufacturer issued a sales warning and also said it would report a wider-than-expected loss.

Still, a dumping of tech shares based on the Gateway news seems a little silly. Gateway's woes shouldn't be a surprise to anybody. The company has been hemorrhaging money for the past two years and its future is in serious doubt. Now if competitors HP (HPQ: down $0.45 to $19.50, Research, Estimates) and Dell (DELL: down $0.34 to $28.31, Research, Estimates) warned, that would seem to be a more serious blow to the tech sector.

Energy is another sector that could surprise on the upside, Kumar says, since oil prices are hovering around $30 a barrel and the companies face easy comparisons to the fourth quarter of 2001.

But Joseph Kalinowski, chief investment officer for brokerage house Ehrenkrantz King Nussbaum, says there is at least one area of the market where estimates might still be too high: retailers.

According to First Call, analysts expect earnings for consumer cyclicals (which includes retailers, automakers, media conglomerates and travel and leisure companies) to be up 25 percent from the fourth quarter of 2001.

Considering that the 2002 holiday shopping season has been widely acknowledged as one of the worst in three decades, Kalinowski says it's tough to imagine how earnings could be up so dramatically for this sector. He thinks that specialty apparel retailers such as Christopher & Banks (CBK: down $0.48 to $22.24, Research, Estimates), Ann Taylor (ANN: down $0.53 to $20.67, Research, Estimates) and Abercrombie & Fitch (ANF: up $0.33 to $22.40, Research, Estimates), may miss their fourth-quarter earnings estimates.