More than half of the S&P 500 companies have reported earnings for the second quarter of 2012 and, thus far, the ratio of negative-to-positive forecasts has produced the highest negative reading since 2001! (Source: Wall Street Journal. July 31, 2012.)

The earnings outlook has been so poor that analysts have had to take down S&P 500 revenue estimates for the coming third quarter. The reasons for the lowered earnings outlook by corporations in the S&P 500; the recession in Europe, the slowdown in China, and the slowdown that is becoming more evident here in the U.S.

For the second quarter, analysts were expecting revenue growth for the S&P 500 of eight percent year-over-year, but, thus far, it has only produced growth of 1.2%! This is the slowest year-over-year growth since the recession began over four years ago!

The negative earnings outlook by corporations in the S&P 500 has forced analysts to change their high single-digit revenue growth forecast for the third quarter to a negative 0.4%—that’s negative revenue growth year-over-year.

This means that, for the last three quarters, revenue growth in the S&P 500 has declined steadily and dramatically.

Historically, it also means that when revenue growth has been negative for S&P 500 corporations, year-over-year, it is usually followed by a recession. (Source: Standard and Poors.) (Also see: “ Key Indicators Continue to Point to U.S. Recession Ahead .”)

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Naturally, as par for course, analysts are optimistic that fourth-quarter revenues for S&P 500 companies will begin to trend back up again. For that to occur, Europe would have climb out of the recession it is in, China would have to grow again, and the U.S. would have to create jobs and begin growing significantly. Good luck with that!

More corporations within the S&P 500 said they calculated a recession in Europe and a slowdown in China, but were caught off-guard by the surprise slowdown that is taking place in the U.S. forcing them to reduce their earnings outlooks.

The two pillars holding up the U.S. stock market and the S&P 500 since the recession hit were the surprising revenue/earnings growth of corporations—especially the multinationals within the S&P 500—and the Federal Reserve with its quantitative easing (QE) programs.

Now, one of those pillars is weakening significantly, as attested by the results and earnings outlook of the S&P 500 companies. This means that the only support to the U.S. stock market will have is the Federal Reserve and more QE.

Pay close attention to what Fed Chairman Ben Bernanke is saying, dear reader. If you are long the U.S. stock market, he may be the only hope you have of a continued rise.

Michael’s Personal Notes:

The talk of a global recession is picking up momentum after manufacturing data from most parts of the world for July came in much weaker than expected.

China’s manufacturing data rose month-over-month, but remained in contraction, and the reading was still the lowest in eight months. (Source: MarkIt Economics.) When looking within the data, 10 of the 11 components that make up the index fell, including manufacturing jobs, which declined in China at the fastest rate in three years! Global recession?

New orders—an indicator of future growth trends—were the weakest in three months, hence the reason for the cut in manufacturing jobs. This highlights the fact that this export giant of the world is signaling that its export markets—particularly Europe and the U.S.—are weak, which is indicative of a global recession.

Not to be left out, Japan’s manufacturing index fell to the lowest level since the Fukushima disaster!

With the index firmly in contraction territory, new export orders in Japan fell for the fourth consecutive month and experienced the fastest rate of decline in almost a year-and-a-half, which pressured manufacturing jobs. The index cited weak demand from China, Europe, and the U.S. Can you say “global recession?”

The British manufacturing index fell deeper into contraction territory for the month of July. The index itself fell to its lowest level in three years, which is pressuring manufacturing jobs and leading calls of a global recession. New exports orders fell at the fastest rate since the height of the financial crisis, way back in 2009! The main culprits cited were the weak markets of Europe and Asia.

Speaking of Europe, the eurozone manufacturing index fell for the 12th consecutive month to its lowest level in over three years! (See: “ Global Economic Contraction Picks up Steam .”)

All of the major economies within the eurozone are deep in contraction territory: Germany, France, Italy, and Spain. New export orders fell at the fastest pace in eight months. Sounds like a global recession…

Manufacturing jobs were lost for the sixth consecutive month in the eurozone. The manufacturing job cuts were the worst experienced in over two-and-a-half years! Certainly, this signifies a global recession,

These severe job cuts were not only seen in Greece, but also took place in Germany, France, Italy, and Spain, which is why talk is growing of a global recession!

Germany is the strongest economy in the eurozone and many expected that the country would be able to prop up the rest of Europe, preventing a global recession. However, Germany experienced the most severe decline of new export orders of all the countries in the eurozone in July, to levels not seen since May 2009!

Not to be outdone, back here at home, U.S. manufacturing declined in contraction territory for the second consecutive month, which was the first time this has occurred since July of 2009. (Source: Institute for Supply Management.)

New orders also remained in contraction territory for the second consecutive month, which was its worst performance since 2009. No global recession here, dear reader? Manufacturing jobs also continued to be lost in the month of July here in the U.S.

The three largest economies in the world: the U.S. China, and Japan—along with other significant countries of the world—are experiencing contractions in manufacturing and manufacturing jobs. Global recession talk is justified, as these numbers not only continue to deteriorate, but also mirror each other. It highlights how interconnected the world is and illustrates how no country can escape the coming global recession.

Where the Market Stands; Where it’s Headed:

Is there any escaping the coming U.S. recession? The more I research, the more I dig deep into the numbers, the more I write about the economy, the more convinced I become that’s where we are headed.

The next phase of the secular bear market that started in March 2009, what I refer to as Phase III of the bear market, will be the most painful. While the government will throw money at the economy again, while the Fed will unleash multiple rounds of QE, it won’t be able to fight the natural forces of the bear market, as it takes stock prices back down.

What He Said:

“I see the coming recession being deep and difficult because U.S. consumers do not have the savings to spend their way out of the recession. The same thing happened in Japan. The Japan example proved that when consumer confidence is shattered, even zero percent interest won’t spur consumer spending. The same thing could happen here.” Michael Lombardi in Profit Confidential. August 23, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.