Earnings aren’t in the spotlight at present; the market’s focus is justifiably on the Fed which starts its two-day meeting on Wednesday (September 16th). The big question is whether they will announce the first rate increase in a long time on Thursday afternoon or delay that decision to a later date in response to recent China-centric uncertainty.

Regular readers know that we have strong views on the subject. But instead of speculating about what they will or will not do on Thursday, we will rather discuss the Q3 earnings season whose early reports will start arriving next week. The FedEx (FDX – Analyst Report) report Wednesday morning will be the first Q3 earnings report from amongst S&P 500 members, followed by Oracle (ORCL – Analyst Report) that same evening and Adobe Systems (ADBE – Analyst Report) the following day. All of these early reporters have fiscal quarters ending in August, which we count as part of our 2015 Q3 tally.

In total, we will get results from more than two dozen companies this week, including 4 S&P 500 members. But as you can see in the chart below of weekly reporting calendar for companies in the S&P 500 index, we will have to wait another 4 weeks for the Q3 reporting cycle to really ramp up.

Will the Earnings Growth Picture Improve?

We know that the growth picture was quite bad in Q2, with total earnings for the S&P 500 index down -2.1% from the same period last year on -3.4% lower revenues. The Energy sector was the primary reason for the aggregate decline – the growth picture improves once the Energy sector is excluded from the aggregate numbers. Excluding Energy, total earnings for the S&P 500 index would have been up +5.2% in Q2 on +1.3% higher revenues.  

The growth picture isn’t expected to improve in the current period either, with total earnings for the S&P 500 index expected to be down -5.5% from the same period last year on -4.4% lower revenues. The headwinds from Q2 are at play in Q3 as well, with a combination of Energy sector weakness, dollar weakness and global growth uncertainties weighing on the outlook. Excluding the drag from the Energy sector (Energy sector earnings expected to be down -63.9% year over year), total earnings for the index would be up +1.7% on +0.7% higher revenues.

Estimates for the quarter came down over the last couple of months, following a trend that has now been well entrenched for quite some time. The chart below shows the evolution of Q3 earnings growth estimates since the start of the period in early July.