Wall St braced for hit to soaring markets US corporations" quarterly earnings are set to register their first decline in more than two years, in what will be a challenge to the stock market's stellar start to 2012. The S&P 500 last week rose above 1,400 - a level not seen since June 2008. It has gained more than 11 per cent this year. That run has coincided with solid earnings reports for the last quarter of 2011. But rising commodity prices, notably oil, are compressing profit margins for many companies, including Procter & Gamble, PepsiCo and Carnival Corporation. In turn, Wall Street analysts are turning increasingly bearish, with analysts forecasting S&P 500 first-quarter earnings will come in 0.5 per cent lower than the first quarter of 2011, the first fall since the third quarter of 2009. That sets the stage for a volatile period for stocks when the earnings season begins next month. "A messy earnings season is likely to grab investor attention and could weigh on stocks," said Barry Knapp, chief US equity strategist at Barclays Capital. Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened. Profit warnings have outpaced positive guidance by three to one, while more companies than usual have offered no guidance at all. PepsiCo forecast a "high single-digits decline" in first-quarter earnings on a recent conference call with analysts, blaming commodity price inflation. Cruise ship operator Carnival said its fuel bill for the quarter would be $137m higher than in the same period last year. Companies have also warned about a slowdown in emerging market growth, and the impact of a strong dollar on margins. Analysts tracked by data research company FactSet are expecting S&P 500 companies to report $225.8bn in first-quarter earnings, down $1bn. Revenue is expected to grow 3.5 per cent but margins to fall for the first time in two years. The bearish turn comes just as analysts globally turn positive on corporate prospects: the first week of March saw earnings upgrades outpace downgrades for the first time in almost a year, according to Citigroup. Investors are divided as to how a poor earnings season would affect US stocks. "The current rally is all about confidence and the retreat of headline eurozone risk," said Jim Paulsen, chief market strategist at Wells Capital. The market still hasn't priced in record-breaking earnings from last year, so a blip in growth should not matter. But Mr Knapp said: "If earnings do disappoint, investors are unlikely to take comfort in past performance."