For Q1 2017, the estimated earnings growth rate for the S&P 500 is 9.1%. If 9.1% is the actual earnings growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since Q4 2011 (11.6%).

At the sector level, eight sectors are projected to report year-over-year growth in earnings for Q1. However, the sector that is expected to be the largest contributor to earnings growth for the S&P 500 is the Energy sector. What is driving the projected positive contribution of the Energy sector to the overall earnings growth for the index in Q1 2017? It is due to a combination of higher oil prices in Q1 2017 and easier comparisons to lower earnings in Q1 2016.

A Closer Look at Energy Growth

Although the price of oil has declined over the past few weeks, the average price of oil ($/bbl.) to date for Q1 2017 is $52.07. This figure is more than 50% higher than the average price of oil in Q1 2016 ($33.69).

In terms of earnings comparisons, the Energy sector reported an aggregate loss in the year-ago quarter. Because of this loss, a growth rate is not being calculated for the Energy sector for Q1 2017. On a dollar-level basis, the Energy sector is projected to report earnings of $7.7 billion in Q1 2017, compared to a loss of -1.5 billion in Q1 2016. Due to this projected $9.2 billion year-over-year increase in earnings, the Energy sector is expected to be the largest contributor to earnings growth for the S&P 500 as a whole for Q1 2017.

If the Energy sector is excluded, the estimated earnings growth rate for the index for Q1 2017 would fall to 5.2% from 9.1%.

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Senior Earnings Analyst
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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