If earnings guidance is any guide, the S&P could be in trouble. The second quarter earnings picture that we can piece together from S&P 500 guidance is a negative one indeed.
Over the past five years, an average of 62 percent of S&P companies that have issued earnings-per-share guidance have given projections below the mean EPS estimate. But research company FactSet reports that for the second quarter, 86 of the 106 S&P companies have projected below the mean, meaning that 81 percent of the guidance has been negative. In the materials sector, a whopping 88 percent of guiding companies have issued negative guidance.
"There's certainly a trend where companies tend to be more conservative when giving guidance, so that can turn around and beat that number," said John Butters, senior earnings analyst at FactSet. But on the other hand, "if we finished here, it would be the quarter with the highest percentage of negative pre-announcements since we began tracking the data in 2006." Butters adding that the percentage of negative guidance is likely to change somewhat in the coming days.
Analysts, for their part, have slashed their earnings growth expectations over the course of the second quarter. Whereas they have previously expected earnings growth of 4.4 percent for the S&P 500, analysts now expect growth of just 1.3 percent, FactSet reports.
In the battered materials sector, analysts used to expect earnings growth of 9.4 percent. But since the second quarter began, analysts have cut earnings growth expectations so that they now anticipate materials companies to report a 3 percent decline in earnings.
That said, it's not all bad news. For the financial sector, analysts have actually increased their earnings expectations, so that 17.1 percent growth is now foreseen. This comes after a first quarter in which 75 percent of S&P 500 financials have reported earnings above estimates.