2Q17 earnings season kicks off next Friday with four banks – Citi, JPM, Wells And PNC – reporting results, accounting for roughly 5% of the S&P 500 by market cap. 89% of the S&P 500 is expected to report earnings by August 4th. And while most analysts expects a beat vs. consensus (+7% EPS) in 2Q, BofA warns that analysts’ forecasts continue to look overly optimistic for the 2H, particularly in 4Q.

After an “as good as it gets” 1Q17 (EPS growth hit a five-year high, sales growth was the best in over two years, and beats hit a 13-year high) largely thanks to a rebound in energy profits, decelerating trends are expected in 2Q, when as Goldman is quick to note, consensus expects S&P 500 EPS year/year growth of 7% in 2Q- driven once again mostly by a forecast 370% rebound in Energy EPS – roughly half the 14% EPS growth in 1Q. Excluding Energy, EPS is expected to grow by 4%, led by Info Tech (+10%) and Financials (+6%). Sales growth is expected to be led by Energy (+26%) and Information Technology (+12%). Two sectors, Materials and Telecom Services, are forecast to experience declines in revenues.

Only three sectors are expected to expand margins during the second quarter (Energy, Telecom Services, and Materials). Goldman further adds that S&P 500 margins of 9.5% are expected to remain flat vs. 2Q 2016, with just three sectors forecast to expand margins. 

As so often happens coming into the reporting quarter, bottom-up Q2 consensus has declined from $33 one year ago to roughly $31.50, however this is actually an improvement from recent history. As BofA notes, “analysts didn’t take a knife to estimates as usual: consensus 2Q EPS has fallen just 2% over the last three months to $31.46, less than the typical pre-earnings season cut of 3%-4% and the smallest downward revision in three years.” Although S&P 500 EPS estimates excluding Energy were revised lower between January and May, they have been roughly unchanged since then, following stronger-than-expected 1Q earnings results.

As a result, BofA forecasts Q2 S&P500 non-GAAP EPS of $32.00, implying +8% YoY growth, a 2% beat vs. consensus but below the post-crisis average beat of 4%. Consensus, while less optimistic than BofA, expects earnings growth of +6.7% YoY and sales growth of +4.6% YoY, both decelerations from the multi-year records set in 1Q17. All sectors except Utilities and Discretionary are expected to see positive YoY earnings growth, with weakness in Discretionary earnings chiefly attributable to Autos. Aside from Telecom, where 1Q earnings were weak in part due to promotional activity/rolling out of unlimited data plans, 2Q earnings are expected to accelerate in Industrials vs. slow or flat-line across the other sectors. Analysts expect sales growth of +5% YoY (vs. +7% in 1Q), and constant-currency sales growth for the S&P ex. Fins. & Energy of +5% YoY (vs. +6% in 1Q).