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IBM Pulls Market Lower; Get Ready for 'Earnings Recession'

Investors are beginning to realize that third-quarter earnings are as bad as everyone feared.

IBM (IBM - Get Report) became the latest poster child for disappointing results on Tuesday, posting a bigger-than-expected 14% drop in sales.

The stock got crushed and pulled the rest of the market down with it. The S&P 500 closed off 0.12%, the Dow Jones Industrial Average fell 0.1%, and the Nasdaq dropped 0.5%.

Stocks are likely heading into an "earnings recession," which is two or more quarters of negative earnings growth. Only a fraction of the S&P 500 have reported so far, but the trends are clear--average earnings have dropped 5.1%, while sales have declined 3.7%.

"So far [the earnings season] appears to be on track to be a lackluster one," said Peter Cardillo, chief market economist at Rockwell Global. "In fact, as we suspected the theme of sour revenue growth among the multi nationals is indeed unfolding."

United Technologies (UTX - Get Report) also reported lower-than-expected quarterly sales as the strong dollar hurt revenue amid engine-delivery delays. However, shares rose after the company announced a $12 billion share buyback program and after net income of $1.67...