Investing.com – Alcoa will report second quarter (Q2) earnings after the close on Monday in what is traditionally seen as the unofficial kick off of the reporting season and experts expect the earnings recession to continue.
S&P Global Market Intelligence forecasts a 5.2% drop in second quarter earnings from S&P 500 companies, compared to a 6.8% drop seen in the first quarter.
According to these experts, that would be the fourth consecutive decline in earnings growth, something that has not occurred since 2009.
Yet, these analysts are positive because they believe that the first quarter marked the trough in the current earnings recession.
“We are finally starting to see the issues that have plagued the last three quarters subside – namely, oil prices ascended to $50 a barrel (it was only 21% lower year-over-year on average during the quarter), and the U.S. dollar relinquished it strength (the US Dollar Index was 1.5% lower on average),” they said.
The energy sector is expected to continue being the strongest headwind to earnings growth with a decline of 81%.
“Notably, that is also an improvement from -106.6% in the first quarter, though not enough of an improvement to make S&P 500 growth excluding the sector positive (ex-energy growth is -0.6%),” they said.
The other five sectors expected to report declines are Materials (-7.8%), Financials (-7.8%), Technology (-5.3%), Consumer Staples (-3.7%) and Telecom (-2.6%).
Leading sectors are Consumer Discretionary (+9.6%), Industrials (7.9%), Utilities (3.3%) and Health Care (3.0%).
To contrast forecasts, FactSet estimates that company profit will fall by 5.6%, while Thomson Reuters projects a 4.7% decline.
Throughout the week, investors will undoubtedly focus on bank earnings with JP Morgan’s release on Thursday, followed by Citigroup and Wells Fargo on Friday, as well as other financial companies such as BlackRock and PNC Financial Services.
Earnings for the financial sector are expected to drop 5.4% in the second quarter. Financials have been the worst performing of the 10 major S&P sector groups this year, down nearly 6%, as they were hit by reduced expectations for a U.S. interest rate hike by the Federal Reserve and uncertainty in the wake of the vote by Britain to leave the European Union, or "Brexit."
Other notable earnings expected this week include Yum! Brands, Delta Air Lines and CSX Corp.