Profits pullback is not just about oil anymore

When it comes to the corporate earnings recession, the damage is spreading well beyond the energy sector.

Fourth-quarter earnings would be negative even without counting energy, the first time that's happened since S&P 500 profits turned negative in 2015, according to the latest numbers from S&P Capital IQ. The projection outside of energy is barely negative, at -0.1 percent, but still represents a substantial landmark.

The 40 companies that make up the energy sector are collectively expected to report a 70.4 percent earnings decline from the same period a year ago, S&P Capital IQ estimates show. That will be the main driver behind a dismal final three months in 2015 that are expected to show a decline of 6.1 percent for the full index.

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But the damage is far from limited to energy.

In fact, seven of the 10 sectors that make up the S&P 500 now are expected to show declines. The biggest drops aside from energy are materials, information technology and consumer staples:

Of course, history strongly suggests that when the dust clears from the quarterly earnings season, the actual aggregate profit decline will be closer to 2 percent or 3 percent, and the reading ex-energy may well be positive.

However, that doesn't override the notion that the weakness, thought by many on Wall Street to be contained to the energy sector, has spread.

The contagion has confounded economists, who believed that by now low gasoline and heating oil prices would have resulted in a net positive to the economy. The current national average for a gallon of regular unleaded gas is now $1.996, a 41 percent decline over the past two years, according to the Energy Information Administration.

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"The magnitude and duration of the slump in oil prices has far exceeded what we originally expected and the longer it persists, the harder it is to argue that decline will ever be a net positive for the US economy," Steve Murphy, U.S. economist at Capital Economics, said in a note to clients. "As a net importer of oil, lower prices should have boosted real economic growth in the US. Instead, the hit to domestic investment has been unrelenting, while households still haven't spent any of their savings."

Indeed, spending has been sluggish while consumers have pocketed much of their gas savings. Saving as a percentage of disposable income was at a robust 5.2 percent while household debt grew just 1.5 percent in the third quarter, according to the most recent data from the government and the Federal Reserve.

The result from a corporate standpoint has been pressure on both profits, which had been growing at solid pace prior to the pullback in 2015, and revenues, which have remained weak throughout the recovery. S&P 500 sales are expected to decline 1.4 percent in the fourth quarter and 2.5 percent for the full year in 2015. Full-year earnings would fall 1.14 percent under current projections from S&P Capital IQ.

"Earlier last year it could be argued that households were reluctant to spend their gasoline savings if they thought it was a temporary windfall," Murphy said. "But the longer prices remain low, the harder it is to make that case."