Salient to Investors:

Profit margins had their first 12-month contraction since 2009 leaving investors increasingly dependent on economic growth to boost stocks.

Bears say stagnant profitability accompanied recessions in 2000 and 2007. Bulls say housing and employment data indicate an accelerating economy and valuations are low.

Russ Koesterich at BlackRock said margins collapse when economies are weakening, and companies remain very profitable, supporting stocks.

Profit margins in the S&P 500 excluding financial firms have averaged 6 percent since 1993. The S&P 500 is at 14.3 times earnings versus the five-decade average of 16.4.

David Joy at Ameriprise Financial said half1 2013 will be a struggle to maintain earning growth.

Analysts expect Q3 S&P 500 income rose 1.8 percent versus an estimate of 9.3 percent on Jan 1, and will increase 10 percent in 2013, unchanged from the expectation 1 1/2 years ago. So far 273 companies in the S&P 500 have reported quarterly earnings declining by 0.4 percent.

Brian Jacobsen at Wells Fargo Advantage Funds said shares are so cheap relative to profits that shares could keep rising even if margins fail to rebound. Jacobsen said sentiment beginning to improve could lead to multiple expansion and drive the market higher even with flat or declining earnings.

David Kelly at JPMorgan Funds said slow global growth means earnings will do pretty poorly at this stage of the cycle.

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