Factset had the most cogent metric this week, with their weekly “Earnings Insight” by John Butters noting that, thanks to Energy and Basic Materials, Q4 ’15’s earnings decline is projected at 4.3%, with Factset noting that this will be the first instance that the SP 500 index has seen three consecutive y\/y declines in quarterly earnings, since 2009.<\/p>\n
While that might sound alarming, the fact is – as this blog has repeated frequently over the last 12 months – the declines are coming from two sectors primarily, comprising about 10% of the market cap of the SP 500, and that is Energy and Basic Materials.<\/p>\n
Both Factset and Thomson are expecting the Energy sector earnings to decline 65% y\/y in Q4 ’15, while Basic Materials is expected to decline 23% and 21% respectively.<\/p>\n
Factset has Energy and Basic Materials revenue falling 34% and 12% respectively in Q4 ’15, while Thomson does not publish forward revenue estimates.<\/p>\n
Here is how Thomson ranks the SP 500 sectors from best to worst EXPECTED earnings growth for Q4 ’15:<\/p>\n
Less than 1\/3rd of the SP 500 by market cap is expecting positive earnings growth for Q4 ’15, however I am puzzled by Tech’s -4.5% expected decline. Apple is lapping tough comp’s with the Christmas quarter last year, but I expect Technology to show y\/y earnings growth by the time the majority of the SP 500 reports by the end of February ’16.<\/p>\n
Conclusion:<\/strong><\/em>\u00a0Like the old Led Zeppelin tune, “The Song Remains The Same”, readers should expect 5% – 7% core earnings growth ex-Energy and ex-Apple in Q4 ’15. Financials will likely have a decent quarter, with Thomson expecting 12% growth and Factset expecting 10% growth. Technology will be the wild card, given it is the largest sector once again in the SP 500 by market cap at 19% – 20%.<\/p>\n