The pace at which earnings estimates are being cut is getting worse, not better.

While bulls cling to predictions that profit growth will resume for Standard & Poor’s 500 Index companies in 2016, analysts just reduced income estimates for the first quarter at a rate that more than doubled the average pace of deterioration in the last five years. Forecasts plunged by 9.6 percentage points in the last three months, with profits now seen dropping the most since the global financial crisis, data compiled by Bloomberg show.

Growing skepticism among analysts is another example of an economic truth, that once corporate income starts to fall across industries, it’s rarely temporary. Most of the downward revisions in projections came in January and February — a clue as to why equities staged their worst selloff to start a year since 2009 and almost $3 trillion was wiped from share prices at the worst point.

“S&P 500 is not immune from the malaise of the global economy and we’re seeing that translated into earnings figures,” said Ethan Anderson, a senior portfolio manager who helps oversee $1.5 billion at Rehmann Financial in Grand Rapids, Michigan. “With the strong dollar, it obviously makes that made-in-U.S.A. look less attractive. Couple that with the weakness that we’re seeing in the global economy, most notably China, some of these estimates had looked fairly rosy.”

Volatility Factor

Once a key support that helped stocks navigate through financial and geopolitical turmoil, earnings have increasingly become a contributor to market volatility along with concerns ranging from the price of oil to the path of interest rates. The decline in corporate profits has worsened every quarter since mid 2015, coinciding with a period where the S&P 500 suffered two corrections after reaching an all-time high in May. 

Forecasters see the stretch of profit contractions now lasting 15 months. In the seven times earnings have fallen at least that long since 1970, stocks slipped into a bear market in all but one instance, data compiled by Bloomberg and S&P Dow Jones Indices show.

Skepticism is rising over the durability of a bull market approaching its seventh anniversary with valuations based on legendary investor Peter Lynch’s favored measure that now surpass levels seen in the previous two runs. Investors hoping for a quick bounce in earnings to ease the multiple pressure may find little comfort in analysts’ estimates.

Negative Growth

Reversing from a growth forecast of 1.6 percent three months ago, income among S&P 500 companies is now estimated to fall 8.0 percent this quarter. Projections for profit gains have turned to declines for technology firms and companies that make consumer necessities, expanding the number of industries with no growth to seven out of 10.

While it’s not unusual for analysts to trim estimates for any current quarter, the recent pace of downgrades is alarming. The reduction of 9.6 percentage points in the past three months is worse than all quarters since the start of 2011 and compares with an average rate of decrease of 4.1 percentage points.  

Analysts see another 1.9 percent decline in S&P 500 profit next quarter, after predicting growth of 3.7 percent at the start of the year. Should the forecasts come true, that would make five consecutive quarters of negative growth.

Stocks are likely to fare better this time because the majority of the S&P 500’s profit decline is concentrated in commodities, and an expanding U.S. economy will enable executives to guide their companies back to the growth path, according to Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.8 billion in Pittsburgh.

The S&P 500 rallied 6.5 percent in the last two weeks of February even as estimates cuts continued. The index surged 2.4 percent to 1,978.35 on Tuesday.

Profits in the index are expected to exceed $1 trillion in the 12 months through December, compared with $740 billion in 2007 and $490 billion in 2000, data compiled by Bloomberg show. Analysts forecast a rebound for all of 2016, with profit rising 3.6 percent.

“We’re going to continue our little limping-along growth, but it’s growth,” Forrest said in a phone interview. “It’s not the end-of-the-world collapse.”

The rally that restored $14 trillion to U.S. share values between 2009 and now has been driven by earnings, which have more than doubled thanks to expense cuts and zero-percent interest rates. Now that the Federal Reserve has started raising borrowing costs, the rally is counting on profits to keep it going more than at any other time.

The S&P 500’s price-earnings multiples are about 1.6 times higher than the rate at which analysts expect profits to grow over the next five years, according to data compiled by Yardeni Research Inc. That difference, a version of something known as the PEG ratio that Lynch favored, is close to the widest since at least 1995.

“We’ve gone through a period of very high multiple expansions based on very high profit margins,” said Mark Travis, chief executive officer of Jacksonville Beach, Florida-based Intrepid Capital Management Inc., which manages $800 million. “We’re starting to see interest-rate headwinds as well as a slowing economy. I can foresee how you could wake up in six months with the S&P 500 at 1,600.’’