The first-quarter earnings season starts in earnest on Wednesday when Alcoa reports after the market close, and the outlook is not pretty.
S&P 500 earnings are expected to fall somewhere between 3% and 4.5% — the first year-over-year decline since the third quarter of 2012 and the biggest drop since third quarter 2009.
The energy sector is seen as the single biggest driver of the earnings decline, with earnings per share falling 60% or more as revenues drop more than 30%. Revenues for the S&P 500 overall are expected to fall somewhere between 1.2% and 4.5%, according to a range of estimates from S&P, FactSet and Zacks.
“This year will be a challenging year and we’ll be lucky to get mid-single [digit] earnings growth in earnings and prices,” says Sam Stovall, U.S. equity strategist at S&P IQ.
Earnings Outlook for Financials
But the outlook for financial companies is not so grim. First-quarter earnings for the financial sector could increase in the low double digits. Standard & Poor’s has financials leading all other major market sectors, gaining 10.9% in first quarter EPS. FactSet has financials as the runner-up, trailing only health care but still up 8.3%, and Zacks falls between the two with financials’ earnings up 9.5%.
Bank of America (BAC) earnings are the biggest factor. The country’s second largest bank is expected to return to profitability in the first quarter, with earnings near 30 cents a share, compared with a five-cent decline a year ago, according to FactSet. Excluding Bank of America, FactSet says, financial sector earnings will rise just 0.9% in the first quarter.
Financials’ Strengths & Weaknesses