The
latest earnings season begins this week as investors switch their focus from
big-picture economic concerns to company-specific earnings reports. The
energy sector will receive most of Wall Street’s attention with analysts
expecting oil/gas company revenues to drop by 64% on a year-over-year basis.
Earnings
expectations for most sectors have been falling sharply in the last few weeks
with the most recent estimate showing a 2.8 percent decline in earnings growth,
mainly due to diminished expectations for the energy sector.
More
than 80% of Q1 earnings pre-announcements for all sectors were negative,
according to Thomson Reuters data. As one writer pointed out, this sets
the bar lower than is usually the case toward the start of earnings season.
Typically,
about 63% of companies beat estimates while just 20% miss. As one analyst
observed, the negativity has set the bar so low for Q1, it may have set the
stage for some positive earnings surprises. With as much short interest
that has built up in certain sectors in recent weeks, a series of positive
earnings surprises could easily catalyze a short-covering rally and put the
bears on the defensive.
