S&P 500 4Q Earnings Estimates Are Bouncing Around

We’re another week into the fourth quarter earnings reporting season, and it looks like Wall Street is really unsure about what’s going to happen. Analysts are expecting a second consecutive quarterly year over year earnings decline, and at this point, there’s little doubt that this will happen. The big question is just how bad the decline will be.

4Q earnings decline estimated at around 6%

S&P Capital IQ Senior Analyst Lindsey Bell said in the Friday edition of her earnings update that on average, analysts are expecting a 5.81% decline in earnings for the S&P 500, which would bring them to $28.78 per share. Over the last week or so, the percentage of decline has been bouncing around but staying close to the 6% area:

  • 14: -6.15%
  • 15: -5.93%
  • 19: -5.99%
  • 20: -6.01%
  • 21: 5.89%

As more and more companies in the S&P 500 release the earnings results from their December quarters, it’s understandable that the percentage is changing rapidly. However, what’s different this time is that there’s a decent amount of fluctuation in both directions. In the third quarter, estimates for the decline trended rather steadily upward. At the end of the quarter, the decline didn’t end up being nearly as bad as what analysts were forecasting at the beginning of October.

Now to be fair, we’re only a couple of weeks into the fourth quarter reporting season, and most of the S&P 500 has yet to report. This coming week, 134 companies are scheduled to release their reports, so by Friday, we could see a trend emerge, especially as heavyweights Apple and Microsoft report.

Just four sectors to see earnings growth

As has been expected for some time, only four of the S&P 500’s ten sectors are expecting to see earnings growth for the fourth quarter with the Telecommunication Services sector leading the way.

S&P 500 4Q Earnings Estimates

In the third quarter, only three sectors saw a decline, with the Energy sector being the biggest drag. And it appears as if things have only gone from bad to worse for the sector, as we’re seeing a clear downward trend in estimates. Just over the last week, the estimate for Energy’s decline has fallen from -70.39% to -72.47, and the first quarter is also expected to be brutal for Energy.

S&P 500 4Q Earnings Estimates

Excluding the drag from the Energy sector, the S&P 500 would actually see earnings growth of 0.5% in the fourth quarter, according to current estimates.

But on the plus side…

The second quarter should bring a return to earnings growth for the S&P 500, however, if current estimates are correct. However, it should also be noted that consensus estimates for the index’s second and third quarter results have been trending steadily downward, so beware of future downward revisions:

S&P 500 4Q Earnings Estimates

And here’s a look at how estimates for the 2015 and 2016 calendar years’ earnings have developed over the last year:

S&P 500 4Q Earnings Estimates

Another positive is that we’re seeing a 70% beat rate right now, which is better than the historic 66% average, although as I mentioned, it’s still much too early to celebrate. Bell reports that of the 73 companies that have reported, 51 have beat earnings estimates, eight reported in-line results, and 14 missed. Here’s a look at the current mix of earnings and revenue beats of the companies that have reported so far:

S&P 500 4Q Earnings Estimates

All charts in this article are courtesy S&P Capital IQ.