May 11th Weekly Market Update

The first quarter 2015 earnings season is virtually over and the results relative to lowered expectations were quite good. Investors were braced for an earnings decline and the possible start of an “earnings recession,” but it looks like they will end up with a better than feared, year-over-year earnings growth rate of about 2%, according to Thomson Reuters data. This pace is impressive considering the significant drags from the oil downturn and strong U.S. dollar. Here we recap the first quarter 2015 earnings season and share our earnings outlook for the rest of 2015.


With 90% of S&P 500 companies having reported, the S&P 500 is on track to produce a year-over-year earnings growth rate of about 2% in the first quarter of 2015. That doesn’t sound like much — and it isn’t. But given the steep uphill climb that corporate America faced due to the twin drags of the oil downturn and strong U.S. dollar, this is actually a good result. Consensus estimates were calling for a nearly 3% drop in earnings when reporting season began, which means that should remaining reporting companies meet estimates, S&P 500 companies would deliver an upside surprise of about 5%, better than the four-quarter average of 4% upside and the long-term average upside of about 3% (since Thomsonbegan tracking this data in 1994).

So, which sectors drove the upside?

ƒƒHealthcare (10% upside surprise). Biotech remains the biggest driver of the sector’s earnings gains. Not only has the sector registered the biggest earnings upside surprise thus far, but its earnings growth rate (17.5%) tops all sectors. Demand from the Affordable Care Act, evident in the strong earnings growth for healthcare facilities companies, and drug innovation are helping drive broad-based growth for the sector.

ƒƒEnergy (6% upside). Strength in refining, effective cost management, and less currency drag than analysts expected are among the factors that contributed to the energy sector’s better than expected performance this earnings season as oil prices fell during the first quarter. Services and equipment companies within the sector suffered smaller losses, although the broad sector is still tracking to a massive 58% decline.

For the full article:EARNINGS RECAP: GOOD ENOUGH?