The Earnings Recession Deepens

With the fourth quarter earnings season almost completed, Q4 Earnings per Share (EPS) for the S&P500 are down 3.3% year over year (YoY), making this the third consecutive quarter of declining YoY earnings.

Attention now shifts to Q1 2016 where things are going from bad to terrible. According to Factset, the YoY Q1 EPS consensus has fallen from the +5% increase expected on September 25, to a -7.4% plunge (even worse according to Bloomberg).

S and P500 2016 Q1

For Q1 88 companies have already issued negative EPS guidance for Q1 while only 22 companies have issued positive guidance. And, dear reader, it’s not just energy. The following sectors are expected to post YoY EPS declines in Q1: Energy (-92.8%), Materials (-19.5%), Industrials (-10.9%), Info Tech (-7.3%), Financials (-4.3%), Consumer Staples (- 2.6%), and Utilities (-0.2%). In fact, only three of ten sectors are expected to see their EPS rise: Healthcare, Consumer Discretionary and Telecom Services.

But while Q1 EPS expectations are crashing, full year 2016 EPS are still projected to be up 1.9% thanks to another Wall Street hockey stick miracle: somehow, consensus expects the growth rates for Q3 2016 and Q4 2016 to be +4.7% and +9.4%. Don’t hold your breath. It’s not going to happen.