Last month, we told our readers that the latest corporate earnings estimates from Standard & Poor's suggested U.S. equity prices could fall sharply within the next six months.

At the time of that writing on June 28, S&P's analysts were expecting operating profits for companies that comprise the S&P 500 Index to grow by only 5.7 percent in the second quarter, after rising at double-digit rates during every previous quarter since the third quarter of 2002.

Over the past couple of weeks, analysts have lowered their earnings estimates further and are now estimating that corporate profits rose only 4.8 percent during the first quarter. For the third quarter of this year, S&P expects corporate profit growth to slow to a year-over-year change of only 2.4 percent.

Profits at consumer discretionary companies, which include the majority of retail chain stores, are estimated to have declined the most during the second quarter, as the continuing housing slump and sub-prime mortgage debacle began to erode consumer confidence.

This erosion of confidence became clear last Friday, when the U.S. Department of Commerce reported that retail sales fell in June by the most in almost two years, after gasoline prices rose to their highest level ever and home prices continued to fall.

Meanwhile, Home Depot Inc., the world's largest home-improvement retailer, lowered its profit outlook last week, citing the housing slump. Shares of Sears Holdings Corp. fell the most in more than four years, after announcing that its second-quarter profits fell by as much as 46 percent.

Yet, with corporate buybacks of their publicly traded stocks and merger and acquisition activity continuing at a brisk pace, the near-term outlook for equities appears to still be positive.

The latest readings on various investor sentiment indicators also remain bullish. For example, Investors' Intelligence polling of investment newsletter writers, which generally tend to be wrong about the future direction of stock prices, show that 33 percent of those newsletters are currently forecasting a pullback in stock prices — this is the highest percentage of bears since August 1997.

Meanwhile, the put-to-call ratio is currently at its highest level since August 1998. At the end of December of that year, the S&P 500 Index had risen a whopping 28 percent.