Estimates For 2016 Q1 Falling Sharply

The picture emerging from the Q4 earnings season is one of all around weakness, with growth hard to come by in the face of a slowing global economy, the strong U.S. dollar, and weakness in the oil and other commodity sectors. This isn’t a new problem, we have been discussing these headwinds the last few reporting cycles as well. In other words, the earnings recession continues with Q4 earnings for the S&P 500 index on track to be below the year-earlier level – the third quarter in a row of negative earnings growth for the index.

This growth challenge isn’t confined to 2015 Q4 alone, the outlook for the current and following quarters has been steadily deteriorating as well. We will discuss the steadily down-trending estimates picture for 2016 Q1 a little later in this write-up, but total Q1 earnings growth for the S&P 500 index are currently expected to be down -7.8% from the same period last year. This is materially down from what was expected for the quarter in early January. In fact, all of the earnings growth for the S&P 500 index in 2016 is now entirely expected to come in the back half of the year, with growth in the first half of the year now expected to be in the negative.

Developments in the oil patch are driving a big part of the negative revisions, but there is plenty of negative momentum in other sectors as well. Estimates for the Technology and Finance sectors have been coming down lately. Take for example the Zacks Consensus EPS estimates for bellwether players like Apple (AAPL – Analyst Report) and J.P. Morgan (JPM – Analyst Report) from these two sectors: the current Zacks Consensus EPS estimate for Apple is $2.01, which is down from $2.22 a month back while the same for J.P. Morgan has dropped from $1.53 to $1.51. Estimates for other major players in these two sectors like Intel (INTC – Analyst Report), MSFT (MSFT – Analyst Report), Bank of America (BAC – Analyst Report) and Citigroup (C – Analyst Report) have similarly come down.

Q4 Scorecard (as of Friday, February 12th)

Total earnings for the 382 S&P 500 members that have reported results already are down -6.4% on -4.6% lower revenues, with 67.4% beating EPS estimates and 48% coming ahead of top-line expectations. At this stage, the Retail and Utilities sectors are the only ones with any sizable number of reports still to come; the reporting cycle is effectively behind us for most of the other sectors.

The table below provides the current Q4 scorecard