As the fourth-quarter earnings season kicks off this week, results for S&P 500 companies are expected to show a decline in profits for a third quarter in a row, confirming that corporate America has slipped into an earnings recession.

Profits are expected to have dropped by 7.2 percent in the fourth quarter on a share-weighted basis, according to data compiled by Bloomberg, while revenues are expected to have fallen by 3.1 percent. This would represent the worst earnings season since the third quarter of 2009. Profits fell by 1.7 percent in the second quarter last year and by 3.1 percent in the third quarter.

The main drags on profits have been the slump in crude prices - with earnings for the oil and gas sector seen dropping 73 percent in the fourth quarter - as well as the sharp rise in the dollar which has hurt exporters, Sam Stovall, U.S. equity strategist at S&P Capital IQ, says.

Profits in the materials sector, home of companies such as DuPont and Newmont Mining, are set to sink 25 percent. A drop of 4.8 percent is expected for the information technology sector, of 4.3 percent for industrials, of 4.8 percent for financials, and of 2.9 percent for consumer staples.

The financials sector is particularly prone to disappointments, BNP Paribas strategists say.

Street estimates for the sector have seen minimal revisions despite negative factors including high market volatility and a sharp slowdown in capital markets activity, the strategists write in a note to clients dated Jan. 11.

S&P Capital IQ’s Stovall says there are also worries about potential ripple effects from the turmoil in U.S. energy sector on the banks.

"Financials face a kitchen-sink quarter, they will probably try to write down whatever they can,” he says.

Beyond the fourth quarter, the earnings picture could improve later this year if the dollar loses steam and if oil prices finally hit a bottom, Stovall says.

"We could see a V-shape recovery in earnings if the pain from a rising dollar and falling oil prices ease.”