The US second quarter reporting season is now delivering bad news in increasing quantities, forcing the usually optimistic and sunny American investors to take stock of what lies ahead for them and the market for the next six months to a year.

And, it ain't pretty.

Technology (Apple and Texas Instruments), banks and financials (Amex) and an increasing number of lower level groups are all reporting solid second quarter earnings: some are down, (Royal Caribbean Cruises); others are quite strong (Apple and Microsoft).

Overnight Caterpillar revealed a solid earnings gain, thanks to the commodities boom in Australia, China and Canada.

A group of regional banksreported profit slumps in the June quarter.

But in most cases it's the outlook that's knocking investors. For the first time in years US stock investors are facing an unpleasant truth: earnings momentum for the next year will be down.

And it will be years before banks and other majors report earnings as solid as in the sunny, easy credit days of 2006.

One off results, like that from Wal-Mart, will help prove this assertion because of its unique position as retailer to America's battered middle and lower classes. (Costco, another retailer aiming at this segment, will also do well).

But when the impact of the one-off tax rebate disappears next month, even these well managed and performing giants, will come under pressure. Already Mervyns, a small privately-owned department store chain is in trouble and approaching bankruptcy.

Yesterday we saw a new American credit crisis shown in all its gory detail.

Consumer-related debt is the next black spot for US banks and financial groups even though the crisis caused by tumbling house prices, the subprime mortgage mess, leveraged corporate debts gone bad and other toxic waste has not eased.

It's been swelling slowly now for six months and hit this week with some force, and not even those rosy tinted folk on Wall Street could avoid the message.

Quarterly results from American Express and Bank of America show the growth of the problem; although the Bank of America management remains optimistic the problem won't get too bad, we should remember they also believed the subprime mess and falling US house prices wouldn't last for long.

Last Friday it was lowered forecasts from Microsoft and Google, which hit the market and yesterday's news confirms the problems have taken root in the tech sector, and where the tech sector meets mainstream America via Microsoft and Google.

Bank of America revealed a 41% drop in quarterly earnings, but that old refrain 'it could have been worse' reverberated through Wall Street dealing rooms and the market jumped, only to run into a rising oil price which regained the $US131 a barrel mark, and knocked the market into the red.

Apple lifted earnings 31%, but forecast lower sales in the next quarter, even with the new Iphone; while Texas Instruments found that mobile phone makers weren't ordering computer chips as quickly as they did in previous quarters: a sign perhaps of slowing sales and rising stocks of phones. Last week's poor results from Sony Ericsson confirmed that idea.

But it was the nitty gritty of the Bank of America result, and the entire Amex report that dismayed Wall Street.

Amex delivered some ugly news. Earnings off 38% because bad debts surged by an amount not forecast by the credit card giant.

The company missed second quarter profit estimates and withdrew its 2008 earnings guidance, saying the economic environment "has weakened significantly" since it issued its year's projections in January - "particularly during the month of June".

"Fallout from a weaker U.S. economy accelerated during June with consumer confidence dropping, unemployment rates moving sharply higher and home prices declining at the fastest rate in decades," said Ken, Chenault, chairman and CEO said in a statement accompanying the profit announcement.

"Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations.

"In light of the weakening economy, we are no longer tracking to our prior forecast of 4-6 percent earnings per share growth. That outlook was based on business and economic conditions in line with, or moderately worse than, January 2008. The environment has weakened significantly since then, particularly during the month of June.

"The scope of the economic fallout was evident even among our longer term, superprime Cardmembers," Mr. Chenault said. "Newer Cardmembers -- whose write-off levels are typically higher than the total portfolio -- are also feeling the impact," he said.

American Express was profitable: it made $US653 million in the quarter, but that was down near 40% from $US1.06 billion made in the second quarter of 2007.

That saw the company abandon that earlier forecast of 4%-6% earnings growth for the year.

Amex's comments were gloomier than earlier in the day from Bank of America chief Ken Lewis, who said repeatedly he views the economic slowdown and the bank's possible credit losses as "manageable".

Well, he would say that: after all, his bank has just bought Countrywide Financial Services, one of the major issuers of subprime dodgy mortgages, for $US2 billion in shares a deal that will be financed by tax write-offs.

Bank of America's profit fell 41% to $US3.41 billion, from the $US5.76 billion earned a year ago.

Sales rose 3.5% to $US20.32 billion; that was better than analysts had expected, but no one had expected the extent of the write-offs in the consumer business.

But looking at the results, there's little reason to be as confident as US investors were. The bank's heartland consumer and small business division bore the brunt of the profit decline.

Profits in the division fell 66% thanks to the worsening in conditions in housing and consumer credit markets. Credit cards (as with Amex), small business and car loans are all going bad.

The bank said non-performing assets jumped to $US9.75 billion, or 1.13% of all loans, during the quarter and it was forced to set aside $US5.8 billion during the quarter to account for loans gone bad or that could falter in the future.

And the investment banking business wrote another $US1.2 billion off dodgy assets, including mortgage-related securities.

This now raises the question for US financial stocks: if house prices are falling, no one is lending for mortgages, apart from the basket cases, Fannie Mae and Freddie Mac, car sales are falling, wages are not growing and jobs continue to be lost at 75,000 a month or more, where's the growth going to come in the next year to 18 months?

There are a host of credit card, insurance, banking and consumer finance companies yet to report results: their outlooks are now worse after the Amex results in particular. The deepening plight of the American consumer has started to take a big bite out of corporate earnings.

The credit crunch and housing collapse of the past year has largely been felt by middle-to-lower-income Americans. Monday's results reflected a broadening of fears.

For American Express to say that even customers with solid credit scores were facing difficulties and even the very affluent have in some cases cut back discretionary spending, is an admission that the contagion effect is now underway and more and more well-off Americans, are going to find themselves less well-off, and perhaps without a job in some cases.

And, not even the fun of taking a cruise to get rid of the credit crunch blues is proving alluring to Americans. Higher fuel costs are hitting the cruise business, just as they have hit airlines, transport generally and petrol costs.

Royal Caribbean reported a lower profit due to a doubling of fuel costs, and laid out a plan to save $US125 million a year.

"Too much of our profitability is being eroded by the increase in fuel prices. This is unacceptable and we are evaluating everything we do to find ways to do it more efficiently and effectively," said Richard Fain, chairman and chief executive of the world's number-two cruise operator.

Royal Caribbean said net profit fell more than $US48 million to $US84.7 million in the latest quarter. To try and offset the surge in fuel costs, 400 jobs are being cut (Amex is also going to cut an unknown number of jobs in the US).

This emphasises that for all the problems here in Australia, our major stocks like the banks, resources, Telstra and consumer durables, such as Woolies, are in much better shape than their US counterparts.