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Alcoa (AA) kicked off second-quarter earnings season by announcing a year-over-year drop in sales and a big net loss.

If you're wondering what this tells us about the rest of earnings season, the answer is "not much." That's because, first, nobody truly thinks about Alcoa as an earnings bellwether anymore. That's due in part to the fact that Alcoa is struggling under issues specific to Alcoa. More importantly, the materials sector in general has been a wreck this year, and it's been tough for any mining or metals companies to overcome that drag.

But Alcoa's earnings report also provides an important reminder as we head into earnings season: Expectations are everything.

Revenue of $5.85 billion was down 2% from the second quarter of 2012, but Wall Street analysts were expecting revenue of $5.83 billion. And while earnings per share -- even on an adjusted basis -- only totaled $0.07, analysts expected just $0.06. So despite lackluster absolute second-quarter results, Alcoa's stock traded down just a penny following earnings because nobody was expecting a blow-out quarter.

(Not so) great expectations
As we look ahead to the rest of earnings season, we could easily say the same for the rest of the market. Here's a sampling of the headlines that were running in the lead-up to earnings season:

  • "Earnings Season Already Looks Like a Train Wreck" (CNBC) 
  • "As Earnings Season Begins, Low Expectations Abound" (Associated Press) 
  • "Lowered Expectations Surround Second-Quarter Corporate Earnings Season" (Forbes) 
  • "Stocks rise ahead of expected weak earnings season" (MSN) 
  • "Wall Street Searches for Growth as Earnings Season Begins" (Yahoo! Finance) 

If we're talking hard numbers, analysts are expecting overall year-over-year earnings growth of 3.8% for the second quarter. To put that in perspective, earnings were up 6.3% in the first quarter versus the prior year.

Analysts predicting quarterly earnings aren't the only ones that are pessimistic. Wall Street "strategists" -- the folks telling investors how they should allocate their investment dollars -- remain pessimistic on stocks. Bank of America's (BAC -0.13%) Merrill Lynch maintains a measure it calls the "Sell Side Indicator" that tracks the allocation suggestions of strategists. Currently, that indicator shows these experts recommending that investors keep just 49.8% of their portfolio in stocks. Here's how B of A's Savita Subramanian interprets that level:

Wall Street's bearishness on equities remains at extreme levels relative to history. Given the contrarian nature of this indicator, we remain encouraged by Wall Street's ongoing lack of optimism.

In short, when it comes to the quarterly Wall Street earnings dance, it's not about -- heck it's never about -- the absolute performance of a given company or the market aggregates as a whole. It's about how absolute performance stacks up to prevailing expectations.

For evidence of how that works out, we don't have to look any further than 2012. For the full year, S&P 500 earnings rose a meager 0.4%, yet the index climbed more than 13% during that year. Investors didn't much care that earnings barely rose because they were expecting an outcome that was even worse.

If we turn to individual companies, we could say something very similar for Bank of America and Citigroup (C -0.32%). Though their respective financial results on an absolute basis haven't been particularly impressive, they've vastly outstripped the pessimistic views that investors had for both banking giants back at the start of 2012. As a result, the stocks are up 131% and 76%, respectively, since then.

Sit this dance out
Of course, even as we digest the importance of "expectations versus reality" in the context of this particular earnings season, it's just as important to keep in mind how little this reporting period will mean for most companies that we're invested in.

Over the past decade, Amazon.com shares are up 670%. Costco's shares are up more than 200% over the same time frame. And since its 2006 IPO, MasterCard shares tacked on an impressive 1,200%.

Here's the question: Does anyone remember whether Amazon missed or beat earnings expectations for the second quarter of 2006? Does anyone care whether MasterCard topped analysts' views in Q3 2008? In both cases, I highly doubt it.

For long-term investors, the quarterly exercise shouldn't be the same "met by a penny"/"missed by a penny" dance that Wall Street tangles itself up over. Instead, the quarterly reports are an opportunity to check in on the companies that we're invested in, determine whether the big picture is still intact, and get on with our lives. In fact, if earnings season consistently offers us an opportunity to do anything, it's to take advantage of the market's rampant short-termism that often puts great companies on sale because of a few-penny shortfall during a single three-month period.

I know this is easier said than done. Our inborn behavioral quirks are put on steroids by Wall Street and the media during earnings season and that increases the risk that we'll do something hasty that we'll later regret. With that in mind, we need to buckle up and be extra mindful of emotionally driven investment decisions during earnings season. As behavioral finance expect Terrance Odean told me last year, investors' biggest pitfall isn't poor discounted cash-flow modeling skills or a lack of hedge-fund exposure, it's their natural propensity to shoot themselves in the foot.