The Q2 earnings season will take the spotlight following the July 4th weekend with Alcoa’s (AA - Analyst Report) report on the 8th. The aluminum producer will be the first S&P 500 member with fiscal quarter ending in June to report results; hence their claim to kick-start each reporting cycle. But they are far from the first to report Q2 results.

The reason for that is that all earnings reports in recent days from companies with fiscal quarters ending in May get counted as part of our Q2 tally. Looked at this way, we have seen results from 11 S&P 500 members already and the tally will have reached 20 by the time Alcoa reports Q2 results after the market’s close on July 8th.

It’s hard to draw any firm conclusions from the results thus far, but market participants don’t seem to be in a forgiving mood for underperformers. The ‘price impact’ column in the summary table below for the 11 S&P 500 members clearly shows investors’ disappointment with the result thus far, particularly for Oracle (ORCL - Analyst Report), CarMax (KMX - Analyst Report) and FedEx (FDX - Analyst Report).

As has been the trend over the last couple of years, estimates for Q2 came down in the run up to this earnings season. This has prompted many in the market to hope that the negative revisions trend may have gone a bit too far, making it easy for companies to jump through. But judging from the market’s reaction to the admittedly small sample of reports, expectations may not be low enough. That said, it is way too early a stage to analyze the Q2 results.

The chart below shows the weekly reporting calendar for the S&P 500 index

For the 2015 Q2 earnings season as a whole, here are the 3 key points to keep in mind.

First, the earnings growth challenge that we witnessed in the preceding quarter is very much present in Q2 as well. Total earnings for the S&P 500 index are expected to be down -7.3% from the same period last year on -6.1% lower revenues. This follows positive earnings growth of +2.4% in 2015 Q1 on -3.2% lower revenues. Revenues were weak in Q1 and the picture isn’t expected to improve in Q2 either.

As you can see in the chart below, not much growth is expected in the second half of the year either, with full-year 2015 earnings now effectively flat from the preceding year.

Growth is expected to resume next year, with total earnings for the S&P 500 index expected to be up in the low double digits.

Second, the Energy sector was a big drag on the aggregate growth picture in Q1 and we are on track to witness replay of that trend in Q2 as well. Total earnings for the Energy sector are expected to be down -64.2% from the same period last year on -41.1% lower revenues. Had it not been for the Energy drag, total Q2 earnings for the S&P 500 index would be essentially flat (down -0.1%).

Third, estimates followed the by-now familiar trend of coming down as the quarter unfolded with the current -7.3% expected decline in total earnings down from a decline of -4.3% on March 31st and positive growth +1.1% in early January. The chart below shows the evolution of Q2 earnings estimates since the start of the quarter.

The silver lining to this negative revisions trend is that the magnitude of negative revisions for Q2 is smaller relative to other recent periods, particularly the preceding quarter. The chart below shows that while estimates for total earnings for the S&P 500 index have declined by -3.1% since the start of the quarter, it is significantly lower than what we saw in the comparable period in Q1 as well as the preceding three quarters.

The issues remain unchanged from what we encountered in Q1, with a combination of strong dollar, Energy sector weakness and global growth issues weighing on the earnings picture. These headwinds are expected to keep a lid on growth over the next few quarters. But next year’s estimates show that analysts are looking for the growth pace to materially ramp up.

To see this week's full Earnings Trends article, please click here.