Even though dozens of S&P 500 (^GSPC) companies have issued negative EPS guidance coming into this earnings season, historical data shows there is a good chance the index will report growth in earnings for the second quarter on a year-over-year basis.
That’s according to FactSet, whose data shows that when companies in the S&P 500 report actual earnings above estimates during an earnings season, the overall earnings growth rate for the index actually increases.
“Overall the last 5 years, 72% of companies have beat the estimates, and on average they’ve beat the estimates by 5%. Typically we do see the earnings growth rate move up during the earnings season, as the higher actual results replace the lower estimated results,” FactSet senior earnings analyst John Butters told Yahoo Finance’s closing bell show, The Final Round.
“If we look at that average increase over the last 5 years, it looks like there’s a pretty good chance we’ll finish with growth about 1% when it’s all said and done,” he added.
The firm’s data further shows that at the sector level, the information technology and health care sectors are the largest contributors to the overall increase in the number of S&P 500 companies issuing negative EPS guidance for Q2 relative to the 5-year average.
Through July 12, a FactSet analysis found that foreign exchange was the factor that was cited by the most companies as having a negative impact. Other common themes included tariffs and trade, wage and labor costs, weather, and raw material and other general inflation.
As for whether there is an earnings recession on the horizon, Butters said it is too early to tell, but if the trend continues, investors can expect a beat.
“We’ll have to see how it plays out in terms of reports, but if we see the average number of companies beat by the typical magnitude, we would expect that number to finish with slight growth for Q2,” he said.
For the week of July 22, more than 660 companies are on the calendar set to report quarterly results. Some notable names include Chipotle (CMG), Coca-Cola (KO), Boeing (BA), Amazon (AMZN) and Google’s parent company, Alphabet (GOOGL).