The last time the stock market did this, the US was in a recession

In the coming weeks, corporate America will be announcing their Q3 financial results, and analysts expect it to be ugly.

“US [earnings per share] growth has been very disappointing this year, with Q3 earnings likely to decline (yoy) for the second quarter in a row,” Societe Generale’s Patrick Legland said on Monday. “Our Equity Quant team notes that profits growth has never been this weak outside of a recession.”

“The estimated earnings decline for Q3 2015 is -5.1%,” FactSet’s John Butters said on Friday. “If this is the final earnings decline for the quarter, it will mark the first time the index has seen two consecutive quarters of year-over-year declines in earnings since Q2 2009 and Q3 2009. It will also mark the largest year-over-year decline in earnings since Q3 2009 (-15.5%).”

According to the NBER, the last recession spanned from December 2007 to June 2009.

Goldman Sachs’ David Kostin has warned that “earnings season could prove turbulent.

None of this is news. Societe Generale’s Andrew Lapthorne and Deutsche Bank’s David Bianco have been sounding the alarm for weeks and months.

“It’s amazing how forgiving the general commentary has been on profits and even the broad economy,” Bianco said in an August email to Business Insider. “Many seem to celebrate the absence of a recession. The labour market continues to tighten, and thus I expect the Fed to hike, but other than some bright spots like auto and housing, growth is extremely weak with underlying drivers like productivity and investment disturbingly poor and S&P profits are not growing.”

All of this is particularly worrisome for investors as the Fed prepares to hike rates. Rate hike cycles are associate with contracting earnings multiples. And with earnings contracting, stock prices may have to contract too.

Of course, it’s only after earnings season is over that we’ll know what really happened.

Still, some warn that not negative doesn’t necessarily mean great.

“These weak [Q3 earnings] estimates could partly reflect companies guiding down to beat expectations, but we believe US earnings could be at risk longer-term,” HSBC’s Ben Laidler said on Monday. “Our top-down model points to just 2% EPS growth for 2016, compared to consensus expectations of 10%. This consensus is based on a further widening of margins, but we find this implausible with margins already high, and wages starting to pick up.

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