Most analysts agree that the S&P 500 will return a significant earnings decline for the third quarter, but what about the fourth? It looks like the benchmark index will post another decline, marking the first time it has done so in two quarters in a row since the second and third quarters of 2009, although it doesn’t sound like the decline will be as bad as that of the third quarter.
2015 earnings similar to 2009 earnings
It seems the second half of this year is comparing quite a bit to 2009, as earnings estimates for the S&P 500 for the third quarter suggested the first decline since that year. FactSet Senior Earnings Analyst John Butters says fourth quarter earnings growth estimates for the S&P 500 have declined steadily since the end of June.
Fourth quarter earnings decline not as bad
According to Butters, this past week, analysts trimmed their estimates for earnings growth in the fourth quarter. Previously, aggregate expectations had been for flat year over year earnings. Over the past week though, that has been reduced to a year over year decline of 0.4% for the fourth quarter. This comes as no surprise in the wake of earnings disappointments from Yum! Brands and Alcoa.
As you can see from the above graph, Wall Street’s expectations for this year’s fourth quarter have been declining steadily, from a growth rate of 4.3% as of June 30, down to growth of 0.2% on Sept. 30. The question now is whether analysts’ expectations for growth will slide further.
This week could bring a significant change as a flood of S&P 500 companies are reporting. Financials will dominate the earnings headlines this week, with names like JPMorgan Chase and Wells Fargo releasing their third quarter reports.
Energy, Materials continue to drag on overall earnings
The analyst also reported that eight of the sectors in the S&P 500 have seen a decline in expectations for fourth quarter earnings growth since the end of June. Analysts up and down Wall Street have been revising their estimates downward steadily since then.
Unsurprisingly, Energy and Materials are the worst two sectors. According to Butters, analysts had been expecting the Energy sector to post a decline of 39.2% in earnings for the fourth quarter. However, those expectations have plummeted even further to an expected decline of 39.2%. For the Materials sector, analysts had been expecting a growth rate of 4.1% for the fourth quarter at the end of June. Now, however, the aggregate estimate for growth has fallen to a decline of 12.4%.
Butters also noted that in spite of all the low expectations for the fourth quarter, analysts are expecting earnings growth to return next year in all four quarters.
Graph is courtesy FactSet.