I guess we have our answer.

How’s earnings season going? Only 42.3% of S&P 500 reported companies beat Q3 revenue expectations and 57.7% have missed. 64.9% have beat EPS estimates. Sucks.

On Monday, I laid out the only question that I felt mattered for the markets. And based on this week’s earnings reports and today’s catching-up reaction, I think we have our answer…

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The Simple Question that Answers All (from 10/15/2012)

Will the market keep rallying?

Yes, if earnings – real and estimated – begin turning higher again.

Otherwise, the rally is dead or on ice until profit growth resumes.

My guess is we’ve come as far as we could have on improving sentiment and Fed-driven multiple expansion for the major averages. Now we’ll see if all of this goodwill and easing can kick in to justify a continued run, another leg.

If not, we pause.

Or worse.

So, ask yourself:

Is the weak earnings picture for Q3 the start of a new trend toward lower profitability or a bump on the road to full recovery?

Simple question. It will answer all.