Nearly Half of S&P 500 Earnings Growth in Q2 Due to Energy

For Q2 2017, the estimated earnings growth rate for the S&P 500 is 6.5%. At the sector level, nine sectors are projected to report year-over-year growth in earnings for the quarter. However, the Energy sector is projected to report the highest earnings growth of all 11 sectors at 401%. 

This sector is also expected to be the largest contributor to earnings growth for the S&P 500 for Q2 2017. If the Energy sector is excluded, the estimated earnings growth rate for the index for Q2 2017 would fall to 3.6% from 6.5%.

What is driving the large positive contribution of the Energy sector to the overall earnings growth for the index in Q2 2017? It is due to a combination of easier comparisons to lower earnings in Q2 2016 and a slight year-over-year increase in the price of oil.

In terms of earnings comparisons, the Energy sector reported a small profit in aggregate in the year-ago quarter. On a dollar-level basis, the Energy sector is projected to report earnings of $9.6 billion in Q2 2017, compared to year-ago earnings of 1.9 billion (in Q2 2016). Due to this projected $7.7 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 Q2 2017.

The Influence of Oil Prices 

While the price of oil declined to its lowest level ($44.46) since November 2016  yesterday, the average price of oil ($/bbl.) to date for the entire second quarter is $49.06. This figure is still 7.6% higher than the average price of oil in Q2 2016 ($45.59).

The average price of oil for Q2 2017 ($49.06) is currently below the average price of oil recorded in Q1 2017 ($51.88) and below the mean estimate for the average price of oil for Q2 2017 ($51.96).  Analysts are projecting even higher average oil prices and higher dollar-level earnings for the Energy sector for the second half of 2017. If oil prices do not increase as expected, analysts may lower earnings estimates for the second half of the year for this sector (as they already have for the second quarter).

For all of 2017, the Energy sector is expected to be the largest contributor to earnings growth for the S&P 500. If this sector is excluded, the estimated earnings growth rate for the index for 2017 falls to 7.0% from 9.9%.