Analyst Expect S&P 500 Earnings to Sink for Q3

As of today, the blended earnings decline for the second quarter for the S&P 500 stands at -3.7%. Factoring in the average improvement in earnings growth during a typical earnings season due to upside earnings surprises, it still appears likely the S&P 500 will report a year-over-year decline in earnings for the second quarter. If the index does report a year-over-year decline in earnings for the second quarter, it will mark the first time the index has reported five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.

Looking at the current quarter (Q3 2016), what are analyst expectations for year-over-year earnings? Do analysts believe earnings will decline in the third quarter of 2016 also?

The answer is yes. This past week marked a change in the aggregate expectations of analysts from slight growth in year-over-year earnings (0.3%) for Q3 2016 to a slight decline in year-over-year earnings for Q3 2016 (-0.1%). However, expectations for earnings growth for Q3 2016 have been falling not just over the past few weeks, but over the past few months as well. On March 31, the estimated earnings growth rate for Q3 2016 was 3.3%. By June 30, the estimated growth rate had declined to 0.6%. Today, it stands at -0.1%.

Eight sectors have lower expected earnings growth rates today compared to March 31 (due to downward revisions to earnings estimates), led by the Industrials sector. On March 31, the estimated earnings growth rate for the Industrials sector for Q3 2016 was 4.3%. Today, the estimated earnings decline is -5.2%.

However, it is interesting to note that analysts in aggregate do expect earnings growth to return in the fourth quarter of 2016.