At the start of the peak weeks of the Q3 2015 earnings season, the blended earnings decline for the third quarter stands at -5.5%. Factoring in the average improvement in earnings growth during a typical earnings season due to upside earnings surprises (see full report for more details), it still appears likely the S&P 500 will report a year-over-year decline in earnings for the third quarter. If the index does report a year-over-year decline in earnings for the third quarter, it will mark the first time the index has reported two consecutive quarters of year-over-year declines in earnings since Q2 2009 and Q3 2009.
Looking at the current quarter (Q4 2015), what are analyst expectations for year-over-year earnings? Do analysts believe earnings will decline in the fourth quarter also?
The answer is yes. This past week marked a change in the aggregate expectations of analysts from flat year-over-year earnings (0%) for Q4 2015 to a decline in year-over-year earnings for Q4 2015. However, expectations for earnings growth for Q4 2015 have been falling not only over the past few weeks, but also over the past few months. On June 30, the estimated earnings growth rate for Q4 2015 was 4.3%. By September 30, the estimated growth rate had declined to 0.2%. Today, it stands at -0.4%.
Eight sectors have recorded a decline in expected earnings growth for Q4 2015 since June 30 due to downward revisions to earnings estimates, led by Energy and Materials sectors. On June 30, the estimated earnings decline for the Energy sector for Q4 2015 was -39.2%. Today, it stands at -61.8%. On June 30, the estimated earnings growth rate for the Materials sector was 4.1%. Today, it stands at -12.4%.
However, it is interesting to note that analysts in aggregate do expect earnings growth to return for all quarters in 2016.
Read more in this week's Earnings Insight.