The earnings picture hasn't been very inspiring in recent quarters, with two back-to-back quarters of earnings declines for the S&P 500 index through 2015 Q3 giving rise to the 'earnings recession' talk. No major improvement is on the way in the coming Q4 earnings season either, with total earnings for the large-cap index expected to be down -7% from the same period last year on -5% lower revenues. This would follow the -2.2% decline in total earnings on -3.5% lower revenues in the Q3 earnings season.
Three consecutive quarters of negative earnings growth will definitely qualify as an 'earnings recession' to most investors. But others like to look at the aggregate earnings picture on an-Energy basis, in recognition of the outsized role that the oil market slump is having on the earnings picture for the sector as well as the broader index. Total earnings for the Energy sector are expected to be down -67.4% from the same period last year in Q4, which would follow the -56.1% decline in the sector earnings in Q3. Excluding the Energy sector drag, total earnings for the rest of the S&P 500 index would down (only) -1.7% on -1% lower revenues. The growth picture for the preceding two quarters also moves into territory on an ex-Energy basis, indicating that the 'earnings recession' talk is a function of how you look at the data.
But irrespective of whether we are in an earnings recession or not, there is no escaping the fact that the earnings growth picture is very weak. With top-line growth non-existent in a backdrop of global economic weakness and the strong U.S. dollar and margins already at prior cyclical peak levels, the best days of earnings growth could very well be behind us.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.