(Bloomberg News) For the second time since the bull market began, profits are surging and stocks are falling.

Standard & Poor's 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven't stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.

The combination of China raising interest rates, concerns about a Greek default and the end of the Federal Reserve's $600 billion stimulus program have almost wiped out this year's gains. The divergence between profit forecasts and economic indicators shows the challenge to investors after the S&P 500 gained 88 percent from a 12-year low in March 2009.

"The market is not willing to pay for future growth," said Nigel Holland, who helps oversee $516 billion at Legal & General Group Plc in London. "Provided there is better data, it will stabilize," he said. "The market probably has room to rise 10 percent by year-end."

The S&P 500 climbed less than 0.1 percent to 1,271.50 last week, snapping its longest retreat since 2008, after reports on jobless claims, retail sales and Chinese industrial production exceeded economists' forecasts and German Chancellor Angela Merkel retreated from demands that bondholders be forced to swallow losses in a Greek rescue.

The S&P 500 fell 0.1 percent to 1,270.31 at 10:18 a.m. in New York today.

Longest Streaks

Equities also got a boost as retailers Best Buy Co. and Kroger Co. said they would match or exceed predictions for 2011 income. The advance pared the S&P 500's loss from its 2011 peak of 1,363.61 on April 29 to 92.11 points.

At 34 days, the decrease is the second longest since the bull market began. The 16 percent tumble from April to July 2010 lasted 49 days, Bloomberg data show. This year's retreat has coincided with a decline in predictions for 2011 gross domestic product growth to 2.6 percent from 3.2 percent, according to the median estimate of 83 economists surveyed by Bloomberg.

Losses since April have pushed the price of the S&P 500 to 14.5 times the past year's earnings, compared with the average of 20.5 since June 1991, according to Bloomberg data. The gauge is valued at 8.7 times cash flow, cheaper than in 81 percent of occasions since 1998. The gauge is priced at 2.1 times book value, or assets minus liabilities, lower than it has traded 90 percent of the time since 1995.