With Q3 Earnings Season Half Done, This Is Where We Stand

With more than half of the S&P500 reporting Q3 results so far, it appears that the earnings recession may finally be ending mostly as a result of the rise in oil prices which have pushed energy earnings higher relative to expectations on a year over year basis, and especially due to surprisingly strong results in the US banking sector.
Consensus now expects 3Q earnings growth of 1% YoY ( 4% ex-Energy), the first quarter of positive growth since 2Q15. While growth is positive and accelerating across sectors such as Financials and Tech, growth is still negative in Energy (for the eighth quarter) and Industrials (for the sixth quarter). Discretionary earnings have notably weakened, driven by Autos, where earnings are expected to decline YoY for the first time since 2009. Sales trends have improved in this sector, suggesting margin compression from cost pressure. We have been concerned about margins for labor-intensive Discretionary companies due to higher wages, and evidence of this has been building in company commentary, and would likely be further exacerbated by a Democratic administration.
Some details on Q3 season from BofA: with the conclusion of Week 3, 292 companies representing 70% of S&P 500 3Q earnings have reported. Estimates climbed across all eleven sectors last week, driving bottom-up EPS to $30.77 from $30.24. This is now more than 3% above analysts’ expectations at the start of earnings season. Earnings are tracking above analysts’ expectations for all sectors except Energy, with the biggest contributors to the beat in Banks, Capital Markets, Aerospace & Defense, Software, and Autos. Meanwhile, Oil & Gas, Metals & Mining, Media, and Industrial Conglomerates have seen the biggest downward revisions to earnings since the start of the month.

This post was published at Zero Hedge on Oct 31, 2016.