By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- Energy and utilities stocks will face a crucial test this week with several big earnings reports due from sector heavyweights ExxonMobil Corp, Chevron Corp., and Dominion Resources Inc.

Both utilities and energy stocks have been the best performers for the quarter and year, even as the broader market has struggled to find direction. The Dow Jones Industrial Average (DJI) declined 0.3% last week and is down 1.3% for the year. The Nasdaq Composite Index (RIXF) fell 0.5% last week for a 2.4% deficit on the year. Only the S&P 500 Index (SPX) is showing a gain on the year, up 0.8%, as it finished down less than 0.1% last week.

The utilities and energy sectors added to their gains for the quarter and year last week. Utilities stocks are up 4% for the quarter and 13% for the year, while energy stocks are up 4.4% for the quarter and 4.6% for the year.

With quarterly reports out from Dow energy components like ExxonMobil (XOM) on Thursday and Chevron (CVX) on Friday, investors will be combing outlooks for evidence of the economic recovery, said Robert Pavlik, chief market strategist at Banyan Partners.

"If the economy is improving you want to hear that demand is improving," said Pavlik. "You want to hear positive comments."

Outlooks this earnings season, while still more negative than average, are slightly less negative than they were halfway through the previous season. Of the 51 S&P 500 companies that have offered a profit outlook, 36, or 70%, have guided below the Wall Street estimate at the time, according to John Butters, senior earnings analyst for FactSet. While that's above the 5-year average of 65%, it's below the 81% at the end of January.

Nearly half the companies in the S&P 500 have already reported this earnings season with more than 130 companies reporting in this week. By market weight, 58% of the energy sector and 66% of the utilities sector will be reporting this week, according to Goldman Sachs data.

Energy sector under pressure to meet low expectations

The energy sector faces a tough road. Already the sector with the worst expected earnings decline this season, results have yet to even clear those low marks. The energy sector was expected to post an earnings decline of 7.6%. Results so far are showing a 9% decline.

Given the weak earnings outlook, some investors are saying the recent spike in energy stocks and exchange-traded funds like the Energy Select Sector SPDR (XLE) is a classic late-cycle play in an aging bull market. Others see it as a smart bet because of innovation in the industry and higher crude-oil and natural-gas prices. Those higher prices, however, slipped this past week with oil seeing its worst weekly drop since mid-March and natural-gas prices down 2% on the week.

Banyan's Pavlik said he's more interested in how oil-field services companies are doing this season seeing that firms like Baker Hughes Inc. (BHI) topped earnings expectations recently.

"Now that most of the large shale plays have been found, there's been a drop off in production," Pavlik said. "So, [exploration and production companies are] going to be searching for more types of these wells."

Energy-services companies reporting this week include National Oilwell Varco Inc. (NOV) and Ensco PLC (ESV). Other energy earnings this week include ConocoPhillips (COP), Valero Energy Corp. (VLO), Hess Corp. (HES), Phillips 66 (PSX), and Marathon Petroleum Corp. (MRO)

High-flying utilities have less pressure to impress

Similarly, inflows into utilities stocks and ETFs like the Utilities Select Sector SPDR (XLU) are also being eyed with suspicion, since the high-dividend stocks act as bond proxies that will likely falter the closer the Federal Reserve gets to hiking its federal funds rate.

Utilities, however, appear to be less under the gun as earnings so far have outperformed expectations with a gain of 15.2%, compared with an expected 7.6% at the end of the quarter. Still, that was only with 13% of the sector's weight reporting. Remember, 66% of the sector's weight reports this week.

Big names in utilities reporting include Dominion (D) , Southern Co.(SO) , NextEra Energy Inc.(NEE) , Exelon Corp.(EXC) , Edison International (EIX) , PPL Corp.(PPL), PG&E Corp.(PCG), Public Service Enterprise Group Inc.(PEG), and Sempra Energy (SRE).

Also earnings from Merck, Twitter, Time Warner

Other earnings reports due this week include Dow component Merck & Co. (MRK) on Tuesday. Health-care earnings are also due from Bristol-Myers Squibb Co.(BMY), Express Scripts Holding Co.(ESRX), Boston Scientific Corp.(BSX), WellPoint Inc.(WLP) , and Cardinal Health Inc. (CAH) .

Other notable earnings reports this week include those from Twitter Inc. (TWTR) , LinkedIn Corp. (LNKD), eBay Inc.(EBAY) , Time Warner Inc.(TWX) , MasterCard Inc.(MA) , Viacom (VIA) , Expedia Inc. (EXPE) , Kraft Foods Group Inc.(KRFT) , and CVS Caremark Corp. (CVS).

With nearly half the S&P 500 having already reported, the earnings growth rate has finally broken back into positive territory with a gain of 0.2%, following a reading of a 2% decline as little as a week ago. At the beginning of the year, first-quarter earnings were forecast to grow by more than 4%, though those estimates fell over the quarter as winter weather hurt businesses.

On average, companies have been beating Wall Street earnings expectations in-line with the four-year average of 73%, and earnings surprises have been fairly consistently rewarded and punished by investors, according to FactSet's Butters.

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