The US economy is entered into an earnings recession. An earnings recession is defined as two consecutive quarters of year-over-year declines.

With earnings season more than half way over, it’s increasingly becoming unlikely that Wall Street will avoid going into an earnings recession.

The last earnings recession was in 2016. The economy recovered just fine. What is different about now than 2016 is that interest rates are much higher and we are in a full blown hostile trade war with China and other countries.

More than 270 of the 505 S&P 500 companies or about 54%, had reported second-quarter results. FactSet reports that the aggregate blended earnings-per-share estimate, which includes both actual and estimated results, is now -2.24%. If the Q2 EPS growth ends up being negative, after a -0.3% decline in Q1, it would mark the first earnings recession since Q2 of 2016.

FactSet reports that of the 11 S&P 500 sectors, seven are showing EPS declines, led by a -19.1% drop for the materials sector, followed by a -12.3% drop in industrials. The health-care sector is the best performer with a gain of +6.4%.

The main cause the earnings decline is weakness in international markets, which has been made worse by Boeing’s cancelled 737, rising interest rates which helped push up the value of the U.S. dollar making exports more expensive, and the trade war with China. S&P 500 companies that generate more than 50% of sales within the U.S. are producing blended EPS growth of 3.2%, while companies that generate most sales outside the U.S. are reporting an EPS decline of -13.6%.

When you consider the fact that EPS growth has largely been manipulated by record share buybacks, the economy is actually a lot worse than the blended EPS growth is showing.

What’s really troubling is that despite the negative earnings outlook and the fact we are going into an earnings recession, the S&P 500 is hitting all-time highs.