For the second quarter, the percentage of companies beating revenue forecasts was the lowest since 2009. For every company that gave a positive outlook, nearly five companies gave negative outlooks, Thomson Reuters data showed.

Third-quarter earnings estimates are down sharply, and now show a year-over-year decline of 1.8 percent, which would be the first quarter of negative growth in three years.

Overall earnings growth for the second quarter looked pretty solid - 8.4 percent. But a charge taken by Bank of America (BAC.N) at this time a year ago skews everything. Take them out, and growth was just 3 percent, according to Thomson Reuters data.

Investors said the results raise red flags for coming quarters. Early in expansions, earnings tend to strengthen as cost-cutting efforts boost profits - but revenues tend to catch up as demand increases later in the cycle. That hasn't happened in an expansion nearing its third anniversary.

"What this is telling us is that the economy is slowing down, and that doesn't bode well for the bullish earnings expectations, which we are so used to," said Pankaj Patel, quantitative research analyst at Credit Suisse in New York.

"Generally there's always a gap, but this gap is much wider."

Despite this, U.S. stocks have held up. The S&P 500 .INX .SPX is just a few points from four-and-a-half year highs.

With results in from 95 percent of the Standard & Poor's 500 companies, just 41 percent have beaten revenue expectations, well below the 64 percent average of the last four quarters, Thomson Reuters data showed.

U.S. companies have been hit on several fronts: a recession in Europe, slower growth in China and a lack of momentum in the U.S. economy. According to a recent Reuters poll, gross domestic product likely expanded at a 1.5 percent annual rate between April and June, after rising 1.9 percent in the first three months of the year.

While much of the economic news is not new, the number of companies posting revenue shortfalls was a surprise in this period. That has happened even though 68 percent of companies beat earnings expectations, the data showed.

Companies have done that by holding down costs and consolidating businesses rather than spending, a fact reflected in the nation's stubbornly high unemployment rate.

Sectors with the worst revenue misses for the second quarter include materials, industrials and utilities, with all three showing a more than 70 percent miss rate on revenue, Thomson Reuters data showed.

"Revenues have not grown in proportion with earnings. That's to be expected early in the recovery, but now we've matured. We're well along in the cycle, and revenues are still trailing," said Michael Gibbs, co-head of Equity Advisory Group at Raymond James in Memphis, Tennessee.

Among industrials that missed on revenue for the quarter was conglomerate United Technologies (UTX.N), which also warned that full-year earnings would be roughly flat with 2011 due to the weak European economy."It is certainly a challenging environment out there, with a slowing global economy," Chief Executive Louis Chenevert told analysts on a conference call.

In the materials sector, Newmont Mining Corp NEW.N missed analyst revenue expectations, and also narrowed its full-year production outlook.

Some bright spots exist, including recent results from a handful of clothing retailers. Gap (GPS.N) late Thursday posted a higher quarterly profit and raised its full-year forecast. Also, teen clothing retailer Abercrombie & Fitch (ANF.N) earlier this week said the pace of declines in its sales has slowed.

With expectations for more central bank stimulus, the market has managed to shrug off lackluster revenues.

The S&P 500 is up 4.7 percent since July 9, when Alcoa (AA.N) reported results, and the benchmark average sits just a few points from a four-and-a-half-year high. The index lost about 4 percent over a similar period when first quarter results were posted.

In addition, the average three-day sector-relative performance - how well stocks do in the three days after earnings compared with their peers - this earnings season ranks better than 91 percent of other quarters going back to 1993, according to Credit Suisse's research.

"It's kind of surprising," Patel said.

(Reporting by Caroline Valetkevitch, additional reporting by Scott Malone; Editing by Alden Bentley)

• A Permanent Economic Emergency