We knew that the core banking business will struggle as a result of the changed Fed interest rate outlook, and loan portfolios will continue to grow, which they did. The capital markets business was expected to be down in the quarter, with the advisory services suffering as a result of macro uncertainty and the trading business going down as a result of Energy sector credit worries. Actual results confirm these pre-season expectations. But what is different is the degree of weakness in trading revenues; they were below the year-earlier level by double-digit percentage points, but the market was ready for even weaker results.

It started with JPMorgan's (JPM) report, whose trading revenue dropped (only) -11% from the first quarter of 2015, with many expecting the decline to be in excess of -20%.

Wells Fargo (WFC) isn’t much of a capital markets player, but both Bank of America (BAC) and Citigroup (C) showed similar trends in their trading operations – they were below the year-earlier level, but not by as much as many were expecting. It is reasonable to expect Goldman Sachs (GS), which reports before the market’s open on Tuesday, to show similarly improved trading results.

As of Friday (4/15), we have Q1 results from 13 of the 88 Finance sector companies in the S&P 500. Please keep in mind however that these 13 finance players include all the major banks and combined account for 30.4% of the sector’s total market cap in the index. Total earnings for these 13 Finance companies are down -12.4% from the same period last year on -2.9% lower revenues, with 44.4% beating EPS and revenue estimates. The percentage of these 13 companies that have been both EPS and revenue estimates is only 22.2%. Notwithstanding the market’s favorable reaction to these reports, this is weaker performance than we have seen from the same group of Finance companies in other recent reporting cycles.

Q1 Earnings Scorecard

As of Friday, April 15th, we have Q1 results from 35 S&P 500 members that combined account for 9.8% of the index’s total market capitalization. Total earnings for these index members are down -9.0% from the same period last year on +0.1% higher revenues, with 71.4% beating EPS estimates and 54.3% beating revenue estimates. The percentage of companies that are able to beat both EPS and revenue estimates is tracking 42.9% at this stage.

The table below shows the current scorecard for these companies.

The charts below compare the results thus far with what we have been seeing from the same group of 35 index members in other recent periods.

The above comparisons show that while the growth pace for these 35 S&P 500 members is notably below what we have been seeing in other recent periods, the picture isn’t that bad with respect to positive surprises. Positive earnings surprises are tracking about in-line with historical levels, while revenue surprises are actually tracking better than the recent past.

This incidence of more numerous positive surprises at this admittedly early stage in the reporting cycle is visible in the ‘blended’ beats comparisons; ‘blended beats’ refer to companies that beat both revenues as well EPS estimates. At present, 42.9% of the 35 S&P 500 members that have reported results are beating EPS and revenue estimates, which is better than what we saw from the same group of companies in the preceding quarter as well as the 4-quarter average, but about in-line with the 5-year average.

The more numerous positive surprises at this stage could be a function of the small/unrepresentative sample. But it could very well be an emerging trend for this earnings season, which would indicate that estimates likely fell more than they needed to ahead of the start of this earnings season.

You would recall that Q1 estimates had fallen the most of any other recent periods, with total earnings for the quarter now expected to be down -10.1% from the same period last year. The earnings decline has steadily been improving in recent days as many of the banks and other companies came out with better than expected results.

Q1 Estimates As a Whole

Combining the actual results from the 35 S&P 500 members that have reported results with estimates for the still-to-come 465 members, total Q1 earnings are currently expected to be down -10.1% from the same period last year. This will be the 4th quarter is a row of earnings declines for the index.

Energy is the big drag in Q1, as it has been in other recent periods, with total earnings for the sector expected to be down -105.7% from the same period last year on -29.8% lower revenues. Excluding the Energy sector, earnings growth for the remainder of the index would still be in the negative – down -5%. In total, 10 of the 16 Zacks sectors are on track for negative earnings growth in Q1, including Finance and Technology, the two biggest sectors in the index.

The table below presents the summary picture for 2016 Q1 contrasted with what companies actually reported in the 2015 Q4 earnings season.

The chart below shows current quarterly earnings growth expectations for the index in 2016 Q1 and the following four quarters contrasted with actual declines in the preceding three quarters. As you can see, growth is expected to be negative in 2016 Q2 and barely in positive territory in the following quarter.

This Week’s Key Reports

We have more than 300 companies reporting results this week, including just over 100 S&P 500 members. The chart below shows the weekly calendar of Q1 earnings reports for the S&P 500 index.

Here are this week’s key earnings reports:

Monday (4/18)

Pepsi (PEP) and Morgan Stanley (MS) are the notable among 6 S&P 500 members reporting in the morning while Netflix (NFLX) and IBM (IBM) will report after the close.

Tuesday (4/19)

Johnson & Johnson (JNJ) and Goldman Sachs (GS) will be among 12 S&P 500 members reporting before the market’s open while Intel (INTC) and Yahoo (YHOO) are the notable among the 6 index members reporting after the close today.

Wednesday (4/20)

Of the 12 S&P 500 members reporting before the market’s open today, the notable ones remain Coke (KO) and Abbott Labs (ABT), while Yum Brands (YUM) and Qualcomm (QCOM) are among the 12 reporting after the close.

Thursday (4/21)

On a busy reporting day with 27 S&P 500 members reporting before the market’s open, the notable reports are Verizon (VZ) and General Motors (GM). Google’s parent Alphabet (GOOGL), Microsoft (MSFT) and Starbucks (SBUX) are the reports of the 10 index members reporting after the close today.  

Friday (4/22)

Caterpillar (CAT), McDonald’s (MCD) and General Electric (GE) are the notable among the 11 index members reporting today, all in the morning.

Note: For a complete analysis of 2016 Q1 estimates, please check out weekly Earnings Trends report.

Here is a list of the 305 companies reporting this week, including 101 S&P 500 members.

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