So much negative uncertainty from big possible events.

Such strong short term earnings fundamentals.

How will these all balance out?

Before I get to my take on the answer to that question let’s take a brief stop to look at what a baseline scenario is and why putting one together is important.

A baseline scenario is a best effort to put together a forecast for a specific market over a specified time period using currently known trends (with the assumptions for those trends clearly stated.) So, for example, a baseline scenario for the U.S. markets over the next 30 days would be built on no Federal Reserve interest rate increase and relatively stable U.S. interest rates as a result of relatively strong inflows into the dollar from risk-averse overseas traders and investors. It would include current projections for an incredibly strong second quarter earnings season, beginning around the middle of July, with Standard & Poor’s 500 earnings growing at 20.2%, according to Yardeni Research calculations of projections from Wall Street analysts for the stocks in the index. It would include the likelihood of a continued meltdown in emerging markets that would help support the dollar and push cash flow toward U.S. financial assets. It would factor in a continued upward trend in oil prices as OPEC and other producers struggle to increase production by enough to counter production problems in Nigeria, Venezuela, and Canada, and impending U.S. sanctions against Iran.  And it would take into account the lag between announcements of tariffs and other trade restrictions by the United States, China, Canada, the European Union, and other countries and the actual implementations and effects of those policies.

A baseline scenario, in my estimation, doesn’t attempt to guess at the effects of big possible events. Yes, we could get a huge escalation in the increasingly nasty tariff and trade war. Yes, we could a military strike by someone in the Middle East that would disrupt global oil supplies. Yes, what is now a worrying weakness in China’s banking system could indeed, as some in the Chinese government have started to warn, turn into a crisis that would further sink emerging markets.

But I don’t put them into a baseline scenario because I don’t know if or when these events might gain enough momentum to move the financial markets. The point of a baseline scenario is to see where the trends that can be solidly identified might take the market–so that we can then factor in these important but difficult to predict events. That lets me get a sense of how much risk and reward there is in the baseline scenario, so I can judge whether or not it pays to face the effects of those possible events.

In my baseline the key current trend is the incredible strength of projected second quarter earnings. Wall Street has actually become event more confident about those earnings projections in the last few weeks–despite all the saber-rattling tariff news. According to Yardeni Research year over year projected earnings growth has actually moved higher to 20.2% on June 21 from 19.8% on June 14. Since actual earnings tend to come in about three percentage points higher than projections, investors are looking at a blow out earnings season.

Earnings season kicks off on July 13 with reports, before the market open, from three big banks and analysts right now are projecting solid earnings growth for each. For JPMorgan Chase, (JPM) the estimates show earnings in the quarter climbing to $2.23 a share from $1.82 a share in the second quarter of 2017. For Citigroup (C) projections show an increase to $1.57 a share from $1.28. Even Wells Fargo (WFC) is projected to show year over year earnings growth to $1.12 a share from $1.03.

It is reasonable, in my opinion, to think that investors and traders will look to capture this extraordinarily strong earning growth by buying into the approach of earnings season.

So the first part of my baseline scenario posits an upwardly trending U.S. stock market, led by the growth sectors and champions, once we’ve clear the Fourth of July market hiatus and running into the start of earnings season on July 13 and after.

And then–it get’s tricky.

Remember I noted that because of lags between tariff and trade announcements and the implementation of those policies, the second quarter won’t see any effects of tariff tensions and the disruption of plans for investment and hiring that some companies have hinted will kick in later in the year.

Which, of course, leaves open the question of what companies will say during their conference calls about the third quarter and the remainder of 2018.

Right now, Wall Street is projecting even stronger earnings growth for the third quarter with Yardeni Research calculating year over year projected growth of 22.5% for the third quarter.

There is concern on Wall Street now that the trade wars now brewing will lead to lower economic growth–and lower earnings growth for the third quarter. Many of these measures will, after all, have moved from announcement to actual implemented policy during the third quarter. Unlike earnings growth projections for the second quarter that have shown a modest increase in the last few weeks, projections for the third quarter have shown a modest drop to 22.5% year over year growth in the third quarter of 2018 as of June 21 from 22.7% as of June 14.

That’s not  strong trend, but it is  trend. The next read on earnings projections comes out for the period that ends tomorrow, June 28, and it will be interesting to see whether the move accelerates or dissipates.

Which leads me to the second and third parts of my baseline scenario.

The second part says that there’s enough nervousness about the direction of earnings growth in the third and fourth quarters of 2018 that the stock of any company that misses earnings in the second quarter is likely to get hit hard.

The third part says takes that a step further to say that the stock of any company that in its second quarter conference call lowers guidance for the rest of 2018 its likely to see its stock move significantly lower.

To a degree what I’m describing for the second quarter earnings season–and the next month or so–is the inverse of the kind of earnings surprise strategy I recommended for the first quarter of 2018. Considering that earnings growth expectations are so high right now, it will be hard for any company to deliver a meaningful upside surprise. And given the height of those expectations and the uncertainties introduced by global tensions over trade and tariffs, it is reasonable to expect that many companies will be lowering guidance for the remainder of 2018 during their second quarter conference calls.

Even without including the possibility of a major escalation in the global trade war, or military action in the Middle East or a blow up in China’s financial system, I’d say that after a move upward in stock prices going into earnings season, the risk for earnings season itself–and the weeks immediately following–are to the downside.

Whether this downside risk remains limited to individual companies announcing disappointing guidance or spreads to the U.S. market as a whole will depend on how widespread the disappointing guidance is and how many of the market leaders join in with their own take on lower earnings growth in the third quarter. (Please note that while in the case of disappointing guidance becoming widespead, I do expect the market to move downward, I’m not yet calling for some kind of major market break, credit crunch, or Minsky moment.)

At the least, my baseline scenario suggests combing through your portfolio for companies that seem at higher than average risk for disappointing guidance.