FORTUNE -- Stock prices are supposed to follow corporate profits. That hasn't been the case recently. And the gap is growing even wider.
Analysts expect the combined earnings in the first quarter for S&P 500 companies to fall 0.7%, according to research firm Factset. That would mark the second dip in three quarters -- it happened in the third quarter of last year as well.
Nonetheless, the S&P 500 (SPX) hit an all-time high on Thursday.
MORE: Stocks haven't peaked
So what's going on? For now, investors appear to be putting more weight on what stocks could earn later in the year than what they are actually earning now. Analysts expect earning growth to leap to 15.6% by the end of the year.
The problem is if this year is a repeat of the last few, that probably won't happen. For the past three years, analysts have been much more optimistic about the fourth quarter than they should have been. For example, back in 2010, analysts predicted earnings at S&P 500 companies would rise nearly 33%. The actually increase: 18%.
You could argue that the string of recent fourth-quarter earnings disappointments could set us up for a surprise this year. But don't hold your breath. A year ago, fourth-quarter earnings expectations were for 15% growth. Profits actually rose 4%.
This year could break the bad streak, but that's not the way things are shaping up. For the first quarter, of the 128 companies that have pre-announced earnings, 105 have said profits will be lower than expected, according to Thomson Reuters I/B/E/S. That's the largest percentage of negative announcements Thomson has recorded since mid-2001.
And it's not like companies are going to get a great push from the economy. While expectations are improving, most economists still think 2013 GDP growth will come in at around 2.3%. So the rest of the earnings growth would have to come from much higher inflation -- which would boost prices and profits, but not sales -- or some serious margin expansion. Inflation that high is sure to force the Federal Reserve to cut back on its stimulus program, which is sure to slow economic growth along with the market. And profit margins are already near all-time highs.
"What we've got is a market that has been driven by fiscal stimulus and monetary stimulus," says top market strategist Rob Arnott. "Now both ... are receding or at least in question, the private sector is not going to spend."
Stocks have added $11.3 trillion in value, or 138%, since the market bottomed four years ago. That's an annual compounded return of more than 26%.
FORTUNE -- It's so much fun to own stocks these days, with the Dow Industrials and Wilshire 5000 index setting one new high after another, and the Standard & Poor's 500 within 1% of doing the same. Watching the value of your portfolio rise is such MOREAllan Sloan, senior editor-at-large - Mar 8, 2013 9:03 AM ET
The gap between sales and earnings growth is shrinking. That's a very good sign.
FORTUNE -- It's not always all about the bottom line.
Analysts and investors are normally focused on corporate profits. But the most interesting sign of where the market and the economy are headed this earnings season could be coming from the top of corporate ledgers, rather than the bottom.
Of the 147 companies in the S&P 500 that reported MOREStephen Gandel, senior editor - Jan 28, 2013 5:00 AM ET
Three years and still kicking.
Stocks, after stumbling last week, were up on Monday, in part because of comments from Ben Bernanke that suggests the Fed might be willing to do more to goose the economy. That's sure to lift the spirits of the crowd that believe the three-year bull run in stocks is far from over. Burton Malkiel recently became the latest high-profile market commentator to proclaim that stocks are MOREStephen Gandel, senior editor - Mar 26, 2012 2:57 PM ET
Now that the economy finally seems to be firmly in recovery mode, it may be time for investors to brace themselves for a slowdown.
FORTUNE -- There is always a disconnect between Wall Street and Main Street. But that has been more true in this recovery. Corporate profits have zoomed higher, while the economy has only slowly added jobs. Usually that disconnect narrows when the economy improves. But because it has been MOREStephen Gandel, senior editor - Mar 22, 2012 2:40 PM ET
If your broker tells you to buy stocks now to avoid missing the summer rally, you can tell him the summer rally hasn't existed for at least 40 years.
FORTUNE -- Welcome to the second day of summer. Yes, I know that today's June 1st, not June 22nd. But we're talking Wall Street seasons here, not calendar seasons.
By the Street's calendar, summer runs from Memorial Day to Labor Day, which is MOREAllan Sloan, senior editor-at-large - Jun 1, 2011 5:00 AM ET
Berkshire Hathaway's chairman won the 2010 race for investment returns, but Protégé Partners retains the long-term lead.
By Carol Loomis, senior editor-at-large
FORTUNE -- We're three years into Warren Buffett's 10-year bet with the hedge fund community, and the race has narrowed. For the second year in a row, Buffett's horse in the contest -- an S&P 500 index fund -- did better than the average return booked by five funds of MOREApr 26, 2011 5:00 AM ET
Most investors still don't have enough international stocks - especially those from emerging markets - in their portfolios.
By Mina Kimes, writer
When it comes to investing, people tend to prefer home cooking. For decades Americans gorged on U.S. stocks and barely touched foreign ones. There was good reason for that -- U.S. equities were, until recently, more widely traded and less volatile than their international counterparts -- but globalization and the MOREFortune Editors - Dec 15, 2010 5:00 AM ET
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