Earnings remain front and center in today’s session, with weak reports from bellwethers in the technology and industrials spaces in the spotlight. The earnings cycle really heats up next week, with more than 170 S&P 500 members coming out with quarterly results. By the end of next week, we will have seen Q1 results from more than 60% the index members.  

Our initial observation about this earnings season of more numerous positive surprises and fewer negative revisions to current quarter estimates are still holding up. It is perhaps not surprising to see a bigger proportion of companies beat estimates given how low estimates had fallen ahead of the start of this reporting cycle, but the deceleration in negative estimate revisions could be a favorable development on the earnings front, provided it continues through the coming days.

Please note that estimates for the current period (2016 Q2) are for earnings growth to be in the negative again, the 5th quarter in a row of earnings declines for the S&P 500 index. Estimates are still going down, but they are not going by as much as they did in the comparable period in the preceding reporting cycle.

Including all of this morning’s reports from the likes of Caterpillar (CAT - Analyst Report), General Electric (GE - Analyst Report), McDonalds (MCD - Analyst Report) and others, we now have Q1 results from 132 S&P 500 members that combined account for 37.3% of the index’s total market capitalization. Total earnings for these 132 index members are down -7.9% on -1.1% lower revenues, with 73.3% beating EPS estimates and 56.1% coming ahead of top-line estimates. This is weak growth relative to what we have seen from the same group of 132 index members in other recent periods. But as mentioned earlier, the proportion of companies beating estimates compares favorably to other recent periods.

The market’s focus in today’s session will be on Tech sector results following weaker-than-expected reports from Google’s parent Alphabet (GOOGL - Analyst Report) and Microsoft (MSFT -Analyst Report). Both of these companies didn’t rise to the expectations that had built up following their blowout results in the preceding earnings season. In other words, the Microsoft and Google disappointments are the inverse of what is happening this earnings season as a whole, with low expectations providing an easy to beat hurdle rate for most companies.

For the Tech sector as a whole, we have Q1 results from 49.6% of the sector’s total market cap in the S&P 500 index. Total earnings for these Tech companies are down -6% on -1% lower revenues, with 72.2% beating EPS estimates and 50% beating revenue estimates. This is weak performance from these Tech companies relative to what we have seen from the same group of companies in other recent periods.

The reporting docket peaks next week, with more than 175 S&P 500 members coming out with quarterly results. By the end of next week, we will have seen Q1 results from more than 60% index members. For Q1 as a whole, combining the actual results that have come out already with estimates for the still to come reports, total earnings are on track to be down -9.4% from the same period last year on -0.9% lower revenues, the 4th quarter in a row of earnings declines for the index.

Earnings declines are expected to continue in the current period (2016 Q2) as well, with total earnings for the S&P 500 index currently expected to be down -4.7% from the same period last year on -0.6% lower revenues. Estimates for Q2 for still coming down. But as mentioned earlier, the pace and magnitude of negative revisions to Q2 estimates is tracking below what we had seen in the comparable period in Q1.