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.