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May 11 2015, 06.55am GMT


Estimated earnings appear to have been beat this season, as what seemed to be a 1st quarter year-over-year drop in a few years is turning out to be a slight increase.

Following Friday’s stronger jobs reports, stocks closed overall higher this week seeing the Dow Jones Industrial Average (DJIA) increasing 0.9%, the S&P 500 index (SPX) increasing 0.4%, & the Nasdaq Composite Index (COMP) decreasing less than 0.1%.

For the S&P 500 index, earnings from companies who have reported and those who haven’t yet reported (also known as blended earnings), showed a first quarter growth of 0.1%. This, according to a FactSet senior earnings analyst, John Butters, is a long way from the 4.7% year-over-year drop forecasted on the 31st March 2015. This makes the swing larger than average, as earnings growth typically ends up around 2% – 3% higher than expected.

The first quarter not only saw energy prices tumble, but also analyst estimates, seeing corporate results lowballed more than the average. Over the quarter, analyst estimates went from a predicted 4.3% growth when the quarter began, dropping to an expected decline of 4.7% during the course of the quarter.

According to FactSet’s Butters, the sharp drop in expectations fueled an “earnings recession” concern, where earnings decrease year-over-year for a minimum of two quarters in a row. However, that concern still remains in some way viable for the remainder of the year as analyst expectations are for a decline in earnings of 4.3% for the 2nd quarter, a 0.5% drop in the 3rd quarter and flat earnings for the 4th quarter.

Considering even if the 1st quarter earnings growth had to hold at 0.1%, it will still mark the poorest quarter since the 3rd quarter of 2012, which saw the S&P 500 earnings drop 1%. Around nine-tenths of the S&P 500 have already reported earnings results this season.

This week will see a mixed bag of sectors reporting results with an emphasis on tech, health care and retailers. There are only fourteen S&P 500 companies set to report this week and they include Actavis PLC (ACT), Cisco Systems Inc. (CSCO) and Nordstrom Inc. (JWN) to name a few. Next week retailers like Wal-Mart, Home Depot and Target will report.

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