Wall Street’s Outlook for S&P 500 Earnings is Cooling More Than Usual

Several big banks will usher in the third-quarter earnings season this week, with Wall Street analysts less optimistic about S&P 500 earnings than they were this summer. 

The Q3 bottom-up earnings per share estimate for the benchmark index—an aggregation of the median estimate for all of the companies in the S&P 500—fell 3.9% between June 30 and Sept. 30, according to FactSet Senior Earnings Analyst John Butters, dropping to $60.72 from $63.20.

It’s typical for analysts to scale back their estimates during a quarter, Butters wrote Friday. But the average decline for quarters tracked over the past five, 10 and 15 years was no larger than 3.4%. (Over the past 20 years, according to Butters, the average was 4.1%.)

Optimism Grows for Tech Earnings

Only one sector saw its bottoms-up estimate rise during the quarter, according to Butters: Information technology, which crept up 0.3%.

That likely means investors will be paying extra close attention to whether big tech companies can continue to sustain stock markets as they have in recent years. 

Banks Kick Off Earnings Season

Financial-sector companies are expected to turn in a 0.4% year-over-year drop in Q3 earnings this year, according to a Monday note from DataTrek citing FactSet data. But that’s largely because of banks, which make up roughly a third of the sector by weight. The other segments—capital markets, insurance, financial services and consumer finance—are all seen growing. 

“We see large-cap financials as a diversified call on continued US economic growth and continue to like the group,” DataTrek wrote. “Just remember that bank earnings, which are always early in a reporting season, only tell a small part of the story about this sector.”

JPMorgan Chase (JPM) and Wells Fargo (WFC) kick off the reporting season for financial institutions on Friday.