Record high for S&P 500 on the horizon
Can earnings from industrials push the markets to historic highs?

Last week, it was bank stocks that moved on earnings. This week, it may be industrials.

On Wednesday, before the bell, Textron and Illinois Tool Works report. On Friday, we hear from General Electric , Honeywell and Caterpillar .

Positive commentary from this group may be enough to lift the Dow and the S&P 500 into record territory. We are very close already.

Here's the issues with big global industrials:

1) There's been a huge downturn in their end markets. Spending on energy, mining, power, and infrastructure-related projects got cut all over the world, particularly in emerging markets. Inventories built up dramatically.

2) Earnings for the entire sector got slashed big-time last year, and the stocks fall apart. Analysts predictably overreacted and cut estimates too much. When traders realized this in mid-February, they bought the stocks back, big time. ITW, for example, went to $105 from $80.

3) Investors typically overshoot the mark on the upside, hoping that growth will resume. The recovery in growth tends to last longer and go deeper than anyone expects. Investors fret and have to decide if they want to hold, or buy even more.

The central problem is figuring out much growth there will be.

Take Illinois Tool Works, one of the great industrials of the world. They are in everything: construction, automotive, commercial food equipment, adhesives, sealants, lubricants, welding equipment. They are everywhere: half their revenues are in the U.S., a quarter in Europe/Africa/MiddleEast and a quarter come from Asia.

If there is a sign of a global slowdown, or a global recovery, they will see it.

Oddly, the stock is at an historic high Tuesday. Why?

The key point helping markets is the expectation that rates will indeed remain lower for longer. This means that investors will pay higher multiples for low risk assets that offer any kind of growth — even modest growth. Earlier in the year, ITW's management guided to 1 percent to 3 percent organic growth in 2016. But its 2017 projection of 5 percent growth — along with some margin expansion — is key to investor attention.

And that's it: modest organic growth, some margin expansion. Caution on capital spending.

Not very exciting, but in a world of 2 percent to 2.5 percent GDP growth for the U.S. and flat growth elsewhere, that's what an investment looks like.

The downside is that valuations are pretty full for those that offer any kind of growth. Many of these Industrials are trading at 20 times 2016 earnings. ITW is at more than 19 times 2016 earnings.

Why buy at these inflated prices? One veteran analyst said to me that the only thing worse than buying ITW (or other industrials) at or near its all-time high in this environment is NOT buying it. There are not a lot of alternatives for idle cash, so, you stick with better quality names with modest growth expectations.

Remember: there is a big penalty for underperformance. You are not going to beat your bogey if you carry too much cash.

I know it sounds like pretty thin gruel, but those kinds of modest growth expectations may indeed be enough to get us another leg higher, into record territory.

Remember, this is exactly what happened with banks last week. Very modest commentary on loan growth and the economy was enough to lift bank stocks 4 percent to 6 percent.

And if someone like GE CEO Jeff Immelt on Friday implies the global economy is in better shape than, say, three months ago, that may be enough to get a few percentage points gain in GE and propel the Dow to new highs.