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Ahead of the Q4 earnings season ramping up, expectations are for +3.1% growth in S&P 500 earnings on +3.9% revenue growth. This would follow +3.8% growth in earnings and +2.3% growth in revenues for the index in 2016 Q3. The growth in Q3 was the first quarter of positive earnings growth for the S&P 500 index after five back-to-back quarters of earnings declines.
The outlook for the Energy sector has notably improved following gains in oil prices, with the sector on track to come out with its first earnings growth in Q4 after 8 quarters of earnings declines. Total Energy sector earnings are expected to be up +17.6% from the same period last year, with the growth trend expected to get even more pronounced in the current and following quarters on the back of easy comparisons and stable oil prices.
For the Technology sector, earnings are expected to be up +3.8% from the same period last year on +4.2% higher revenues. Apple (AAPL - Free Report) remains a drag on the sector’s growth pace in Q4 with its expected -6.4% decline in total earnings on essentially flat revenues (revenues are expected to be up+0.3%). Excluding the Apple drag, total Technology sector earnings would up a relatively respectable +7.8% from the year-earlier period on +5.3% higher revenues.
Unlike the Technology sector, growth is expected to be strong from the other major earnings contributor to the S&P 500 index, the Finance sector. The Finance sector has been a strong a performer since the November election, with the Zacks Finance sector up +6.2% since November 8tt (vs. +5.6% gain for the S&P 500 as a whole).
Total Q4 earnings for the Finance sector are expected to be up +10.7% from the same period last year on +2.2% higher revenues. Easy comparisons at AIG (AIG - Free Report) is a big contributor to the sector’s strong Q4 growth expectations. Excluding the AIG contribution, the sector’s Q4 earnings growth drops to +5.7%. You can read more about the sector’s earnings picture and the outlook for stock market performance in this article – Can the Bank Stock Rally Continue?
The pre-announcement period that many companies make use of in lowering market expectations has been relatively quiet this earnings season, which is actually a favorable development. This should add to confidence in expectations for the current and following quarters when growth is expected to notably accelerate. Total earnings for the S&P 500 index for the 2017 Q1 quarter are currently expected to be up +9.3% from the same period last year. Based on history, these Q1 growth expectations should be coming down as companies report 2016 Q4 results and guide lower. But it will be interesting to see if that will happen this time. We didn’t see that much negative estimate revisions in the run up to the Q4 earnings season either. Continuation of this favorable trend on the revisions front should help stocks hold on to their post-election gains even if actual Q4 results don’t turn out to be that strong.
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Previewing the Q4 Earnings Season
Ahead of the Q4 earnings season ramping up, expectations are for +3.1% growth in S&P 500 earnings on +3.9% revenue growth. This would follow +3.8% growth in earnings and +2.3% growth in revenues for the index in 2016 Q3. The growth in Q3 was the first quarter of positive earnings growth for the S&P 500 index after five back-to-back quarters of earnings declines.
The outlook for the Energy sector has notably improved following gains in oil prices, with the sector on track to come out with its first earnings growth in Q4 after 8 quarters of earnings declines. Total Energy sector earnings are expected to be up +17.6% from the same period last year, with the growth trend expected to get even more pronounced in the current and following quarters on the back of easy comparisons and stable oil prices.
For the Technology sector, earnings are expected to be up +3.8% from the same period last year on +4.2% higher revenues. Apple (AAPL - Free Report) remains a drag on the sector’s growth pace in Q4 with its expected -6.4% decline in total earnings on essentially flat revenues (revenues are expected to be up+0.3%). Excluding the Apple drag, total Technology sector earnings would up a relatively respectable +7.8% from the year-earlier period on +5.3% higher revenues.
Unlike the Technology sector, growth is expected to be strong from the other major earnings contributor to the S&P 500 index, the Finance sector. The Finance sector has been a strong a performer since the November election, with the Zacks Finance sector up +6.2% since November 8tt (vs. +5.6% gain for the S&P 500 as a whole).
Total Q4 earnings for the Finance sector are expected to be up +10.7% from the same period last year on +2.2% higher revenues. Easy comparisons at AIG (AIG - Free Report) is a big contributor to the sector’s strong Q4 growth expectations. Excluding the AIG contribution, the sector’s Q4 earnings growth drops to +5.7%. You can read more about the sector’s earnings picture and the outlook for stock market performance in this article – Can the Bank Stock Rally Continue?
The pre-announcement period that many companies make use of in lowering market expectations has been relatively quiet this earnings season, which is actually a favorable development. This should add to confidence in expectations for the current and following quarters when growth is expected to notably accelerate. Total earnings for the S&P 500 index for the 2017 Q1 quarter are currently expected to be up +9.3% from the same period last year. Based on history, these Q1 growth expectations should be coming down as companies report 2016 Q4 results and guide lower. But it will be interesting to see if that will happen this time. We didn’t see that much negative estimate revisions in the run up to the Q4 earnings season either. Continuation of this favorable trend on the revisions front should help stocks hold on to their post-election gains even if actual Q4 results don’t turn out to be that strong.
Confidential from Zacks
Would you like to access Zacks' 2 best trades that are not available to the public? Zacks Executive VP, Steve Reitmeister knows which of our experts has the hottest hand and when key trades are about to be triggered. Today he is prepared to pass the Best of Our Best along to you. See these timely buys now >>