The market sure could use a beat-and-raise earnings season given what’s on tap this time around. Weighed down by the energy, materials and financials sectors, S&P 500 earnings are going to plunge.
For the first quarter of the fiscal year, companies in the benchmark index are forecast to post a 9.1% drop in earnings, according to data from FactSet.
Even after adjusting for the probability that the S&P 500 will beat estimates, earnings are still seen dropping by 5.8%.
If this earnings season is a dud as expected, it will mark the first time the S&P 500 has seen four consecutive quarters of year-over-year declines since the fourth quarter of 2008 through Q3 of 2009.
Those were bad times, but it’s not an epic recession hitting quarterly profits today. Rather, it’s the same killers we’ve become accustomed to — the collapse in oil prices, global sluggishness, ultra-low interest rates and the strong dollar. As a result, the following three sectors are going to ruin S&P 500 earnings this season:
Energy
No surprise here. Oil and gas prices are ticking up now, but the improvement comes too late to help companies tied to the energy sector.
Oil majors, independent exploration companies, industry services businesses and even pipeline operators are getting hammered. Put it all together and the energy sector will put up a loss. No wonder oil and gas companies are slashing dividends all over the place.
The energy sector’s loss is expected to be led by some big-name companies. Exxon Mobil Corporation (XOM) earnings per share forecast was slashed to 32 cents vs. a year-ago profit of $1.17, according to a survey by Thomson Reuters. Chevron Corporation (CVX) is looking to swing to a loss, with negative EPS of 9 cents vs. income of $1.07 last year. And forget about ConocoPhillips (COP). Its loss is forecast to widen to 88 cents from 18 cents a year ago.
Materials
After the energy sector, materials are going to have the second-worst performance. Oil prices haven’t been alone on their downward spiral … iron ore, copper, coal — you name it — have been laid low as well. Gold prices actually rallied in Q1, but that can’t offset pain everywhere else.
Indeed, the sector’s contribution to the S&P 500 bottom line is expected to drop off by 22%. Although some important sector names will still be profitable, it won’t be able to offset widespread weakness.
For example, Freeport-McMoRan Inc’s (FCX) loss should be 19 cents vs. 6 cents in last year’s first quarter. Other names weighing on earnings growth include Mosaic Co (MOS) and E I Du Pont De Nemours And Co (DD).
Financials
Lastly, the financials sector is going to be ugly, hurt especially by bad numbers from the banks. The sector is forecast to report an earnings decline of 11%.
The first quarter is traditionally a seasonally strong time for investment banking, but this year was terrible. Rocky markets, a surprise rate cut in Japan and negative rates in Europe and interest-rate uncertainty here at home have crushed demand in fixed income, mergers and acquisitions and initial public offerings.
Some of the biggest names will be the biggest drags on sector earning. Earnings per share at JPMorgan Chase (JPM) — the nation’s largest bank by assets — should drop to $1.26 from $1.45 last year. Wells Fargo & Co (WFC) — the largest bank by market cap — will slump to 98 cents a share from $1.04 a year ago.
As depressing as all this sounds, remember that the market has already priced it in. What’s truly important is how companies perform against expectations and outlooks. Better-than-expected earnings and some hikes to guidance would help the broader market build on recent gains.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
