Just imagine the jitters. Second-quarter Wall Street earnings are just around the corner and expectations of earnings growth are being chipped away on a daily basis by a regular diet of profit warnings and analysts' downgrades.

Earnings growth in the second quarter which, at the start of the year, was projected at a robust 12.9 per cent, now is expected to come in at a paltry 1.5 per cent.

The downgrading is so rapid that estimated earnings growth has slumped by more than a third in just a week (from 2.3 per cent to 1.5 per cent, according to FirstCall, which collates estimates).

Worse, the prospects of a once-certain healthy rebound in the second half now appear dim. Although Wall Street is still looking for 15 per cent earnings growth in the fourth quarter, the combination of a national car strike and an economic slump in Asia make a further routine downgrading of expectations almost a foregone conclusion.

This is, in fact, the picture in the US equities market, although it is easy to forget it. Last week, probably the biggest week for company pre-announcements the Standard & Poor's 500 and the Nasdaq Composite index both hit new highs.

A spate of recent profit warnings from DuPont, the chemicals and life sciences group, J.C. Penney, the retailer, and Hershey Foods caused nothing more than a minor setback.

DuPont, a recent darling of the stock market, blamed everything from the weather and pricing pressures in agricultural chemicals to the Asian crisis and the General Motors strike for an expected 10 to 15 per cent drop in second-quarter earnings, relative to last year. Although at least some of these factors, particularly the Asian crisis, are likely to hit a broad range of companies, cyclical stocks were the main victims of the backlash.

Will it make any difference when the market starts to see the evidence of real second-quarter earnings? Probably not.

Companies, aided by friendly analysts, now have slashed expectations so far that they should be able to pull some artificial positive surprises out of their hats. The market will then decide that, after all, things are better than expected and stage a further rally.

"We're going to wind up with an instant replay of the first quarter," predicts Bill Meehan, chief market analyst at Cantor Fitzgerald. "Analysts pruned back earnings estimates day by day by day," he adds. This allows companies to come out with some positive news in spite of having previously seen their first-quarter earnings estimates slashed.

The result? "Money just flowed into the market." The same thing, he believes, is set to happen again, noting the $24 billion in funds (£17 billion) which flowed into equity mutual funds in June.

"No one seems to care about valuations or earnings anymore," he laments. But he says he has been "very cautious" on the market since last December. He believes that if a further rally is prompted by the second-quarter earnings season, "we will be at levels that are even further beyond the realms of sense".

Jeff Applegate, chief investment strategist at Lehman Brothers, is more sanguine. He notes that, in previous pre-announcements, there have been some big shocks from large bluechip companies such as Boeing, Motorola and CocaCola. This season, despite warnings from DuPont and a clutch of retailers, has certainly been no worse.

More important, he believes the market can survive another quarter of meagre earnings, and even a limited recovery in the second half. This is because of the low interest-rate environment which will allow the price portion of the price/earnings equation to climb, even while earnings are rising only slightly, so allowing further rational gains in the stock market.

However, Mr Applegate believes that next year will bring a somewhat less benign environment for equities. His estimate for earnings growth this year, now 4 per cent, is somewhat below the market's guess of 6 per cent, but his projection for 1999 earnings growth of 8 per cent is substantially below the market's 16 per cent.

He believes next year's earnings growth will be coupled with flat inflation and flat interest rates. While this could still mean a reasonably buoyant stock market, investor surveys showing many consumers are still looking for close to 20 per cent gains annually suggest, there could be some disappointment ahead even without a big correction.