A little over a third of companies have reported so far in the second quarter earnings season, and as of this moment the Q2 EPS and revenue declines are set for a -2.2% and 4.0% decline, respectively. To be sure, if one excludes energy companies re-crushed by the latest plunge in oil now that the first half dead cat bounce is over, earnings look much better but then again if one excludes AAPL things get even worse.

Unfortunately for corporations and the broader S&P, the Q2 revenue and earnings recession will be validated when Q3 and Q4 also post broad declines in sales and EPS. According to Factset, analysts are expecting year-over-year declines in earnings to continue through Q315, and year-over-year declines in revenue to continue through Q415.

Having finally admitted that for the first time since the “recovery” the corporate profitability market is signalling that something is very wrong, sellsiders at least have their traditional fall back: optimism, and analysts are looking for record level EPS to resume in Q4 2015. Analysts expect net profit margins to remain relatively flat in the 2nd half of 2015 with the profit margin being reported for Q2.

The question is not whether they are wrong, they are – the question is by how much. The answer will be determined largely by any/all of the following three “C”s which continue to define the ugly face of non-GAAP corporate earnings for the past 3 quarters which appear set to persist for the foreseeable future.

The three C's in question: China, Commodities and Currencies (or rather one currency, the US Dollar).

Here is a sampling of the Q2 conference call soundbites on these three so important variables for corporate profitability.

China

“Turmoil in China's equity market has reached unprecedented levels, and the impact of intervention is yet to be fully understood by our markets.”

–BlackRock (Jul. 15)

In Asia/Pacific, the sales decline was primarily due to lower sales in China and Japan. In China, the lower sales resulted primarily from continued weak residential construction activity… As we expected, mining continues to be severely depressed, construction-related sales in China and Brazil are substantially lower than 2014 and orders related to oil and gas are down significantly which will likely lead to lower sales in the second half of 2015. 

– Caterpillar (Jul. 23)

“So, we have seen in China some slowdown. I wouldn't call it acute. There's some dynamics, of course, of generic competition in China and an overall slower growth in economic growth. So we are seeing that, but I think we're well positioned… So I wouldn't call it acute, but I would say we've seen some slowdown in the overall market growth in China.”

–Johnson & Johnson (Jul. 15)

“I think the good news is that sales are recovering. We went from minus 12% to minus 10% despite a more difficult lap of plus 15%. The good news is that the consumer metrics are improving, trending in the right direction. As always, these are never linear, unfortunately, but we do know that when we compare this to previous recoveries, we're going in the right direction, making progress across the board. So I feel good, and we remain obviously bullish on China. We continue to invest in China. And I think as you know, these customer metrics are the harbinger of future sales performance.”