I’ve been begging analysts to get real and take off those rose-colored glasses for months now. Their unwarranted optimism has resulted in two incredibly wrong-headed predictions.

1. That the recession is short and shallow, and something resembling healthy growth will resume beginning in the second half of this year.

2.That company earnings will once again enter double-digit territory in the second half of this year.

If you want to get sucker-punched by these false good tidings, then all you have to do is fall for the improvement of a company’s forward P/E compared to its TTM (trailing twelve months) P/E ratio. For example, if a company shows a TTM P/E of 15 going to a forward P/E of 12), you’d be investing on the premise that the company’s earnings in the next year will go up over 25 percent. You have to ask yourself, what are the chances of that actually happening?

PEG ratios have also been sucked into Wall Street’s inflated numbers. The “G” or “Growth” part of the PEG ratio looks at growth for the next five years. That number is way higher than it should be, because (as I’ve been saying for months) this recession is neither shallow nor short.

Finally… in the face of housing starts, housing inventories, foreclosures, consumer sentiment, durable orders and a host of other indicators hitting lows not seen for either years or decades, Wall Street is beginning to catch on.

J.P. Morgan cut its second-half-growth forecast by one full percentage point to 1.25%. I have a feeling other brokerages will be following suit.

These reassessments are lagging badly behind the data. It’s almost as if by closing its eyes, Wall Street is trying to will the economy into turning around. But the real laggard is earnings expectations. They’re even trailing behind the broader economic predictions.

It’s setting up the market for a fall in the second half of the year. We all know that markets move up and down based on expectations. And when expectations aren’t met, share prices can go south quickly.

The market went up last week. That means there’s hope. And hope is the last thing the market needs. Hope floats expectations. But it does nothing to raise company performance. And that disconnect is going to kill the market as summer turns to fall.