It's reality check time for stocks

stocks reality check
Earnings season is in full gear next week and that means its earnings time.

The time of reckoning is here for the market.

Last week felt like someone pulled the fire alarm. The Dow suffered its worst drop of the year and ended the week 2.7% lower. The best explanation for the sell-off was fears of a German slump and the timing of Federal Reserve interest rate hikes.

What comes next for stocks depends largely on corporate America. Some of the biggest companies in the U.S. are up to bat with third quarter earnings this week. Investors will be looking for continued signs of growth.

Along with the Fed's unprecedented stimulus and low interest rate policies, earnings have been the lifeblood of the historic five-year bull market. Since the recession, companies have been cutting costs aggressively in an effort to squeeze out every inkling of profit, and investors have eaten that strategy up.

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But it's possible that the earnings love story could hit a rough patch. The estimated earnings growth rate for the third quarter is 4.6%, according to FactSet. That's good, not great, especially when considering that as of the beginning of the third quarter, FactSet was estimating earnings growth of 9%.

Here's what to watch for as earnings from the big guys start rolling in this week.

Tech: Some hot tech names will take center stage this week.

Investors will be watching eBay (EBAY) closely when it reports earnings after the closing bell Wednesday. The ecommerce giant announced a few weeks ago that it was spinning off PayPal into a separate company, so analysts will most likely hound eBay executives on the company's conference call for more details about the plan. EBay's stock is actually down 5% this year.

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Netflix (NFLX)also releases results Wednesday afternoon. The stock has soared almost 25% this year as investors have cheered its subscriber growth and plans for international expansion. Earlier this month, Netflix announced a deal with Adam Sandler for the comedian to produce and star in four feature films that will be released exclusively on the streaming video service.

Google (GOOG) reports earnings after the bell Thursday. Shares of the tech behemoth have fallen in the past month amidst a broader pullback in tech stocks, but it's still up almost 30% in the last year. Analysts will keeping an eye on how Google executed on its new mobile ad strategy.

Banks: Big banks kick off earnings on Tuesday with JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC).

The big question is how much they are lending again -- to consumers and other businesses.

Trading revenues at the financial powerhouses are expected to have stabilized last quarter compared to the prior three months as volatility finally crept back into the market in September. (Banks make money from market choppiness as clients trade more.) Still, increased regulations have put a crimp on overall banks' trading operations in recent years, so they're still not quite the profit engines they used to be.

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Firms should also get a boost from investment banking fees, earned from such activities as advising on mergers and helping take companies public. The third quarter continued to see strength in those areas, including the largest IPO in history of Alibaba (BABA) in September. .

Bank of America (BAC) reports Wednesday, and its earnings are expected to take a hit from its $16.5 billion settlement with the government over subprime mortgage-backed bonds it sold during the lead up to the financial crisis. Still, investors seem happy that its critical legal issues appear to be in the rear view mirror. Bank of America's stock has shot up over 8% in the last three months.

Goldman Sachs (GS) and Morgan Stanley (MS) report earnings Thursday and Friday, respectively.

Global headwinds: While many investors remain confident in the American recovery, there are signs of trouble brewing abroad.

The market suffers from whiplash
The market suffers from whiplash

The main fear is that major U.S. multinationals that derive a significant chunk of their revenue from overseas could be hurt by a slowdown in Europe and China. While a global economic downturn last quarter may have bruised American companies, it's more likely that the repercussions will be felt in the current quarter.

Investors will be scrutinizing the forward guidance in the earnings reports for signs of how European sales are faring.

Related: German stocks hit 1-year low on recession fears

A stronger dollar could hurt companies because their foreign profits will be trimmed once they convert their earnings back to greenbacks. Additionally, a more robust dollar makes it harder to compete with corporations in countries with weaker currencies that can lower prices for consumers.

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