The following is an excerpt from this week's Earnings Trends article. To see the full article, please click here.

With results from almost two-thirds of the S&P 500 index’s total market capitalization already on the books, we have a good sense of how the Q1 earnings season has unfolded. The actual numbers will evolve over the coming days as more companies report results, but the broad pattern emerging from the results thus far will likely carry through to the end.

This broad pattern pertains to broad-based top-line weakness. Not only are revenue growth rates very low, but an unusually large proportion of companies are missing consensus revenue estimates. We knew that growth rates would be challenged this earnings season following the unusually sharp cuts to estimates ahead of the reporting cycle, but the very low revenue beat ratios are nevertheless a standout element of this earnings season.

It appears that the analyst community underestimated the impact of the strong dollar on Q1 results. This point becomes obvious in a comparison of the results thus far between the internationally exposed S&P 500 members and the more domestic oriented Russell 2000 members. More on that in the detailed report, but let’s do the numbers first.  

Q1 Scorecard (as of April 29th, 2015)

We now have Q1 results from 280 S&P 500 members that combined account for 66.0% of the index’s total market capitalization. Total earnings for these 280 companies are up +9.1% on essentially flat revenues (down -0.1%), with 66.2% beating EPS estimates and only 41.3% coming ahead of top-line expectations. This is weak performance compared to what we have seen from the same group of 280 S&P 500 members in other recent periods. (Please note that we provide the scorecard for the Russell 2000 index on page 16 of the detailed report)

The two side-by-side charts below give a historical context to the results thus far – by comparing the Q1 earnings & revenue growth rates (left-hand side chart) and earnings & revenue beat ratios (right-hand side chart) with what these same companies achieved in the preceding quarter as well as the 4-quarter average.

Three things stand out as we look at the results thus far

First, the revenue weakness is very notable. We knew that growth will be problematic in Q1, so the weak revenue growth rate of -0.1% compared to other recent periods isn’t that surprising. But the very low proportion of companies beating revenue estimates is surprising and likely indicative that the growth backdrop has been even weaker than what was reflected in consensus estimates.

Second, the earnings growth rate (+9.1%) compares favorably to what we saw from the same group of companies in 2014 Q4 and the 4-quarter average. But the favorable growth rate comparison is solely due to the Finance sector. Exclude Finance from the result and the growth comparison shifts in the other direction, as the right hand-side chart below shows.  

The Finance sector has been a big growth contributor this earnings season, with total earnings for the sector up +19.6% on +1.0% higher revenues, with 59.3% of the sector companies beating EPS estimates and 42.6% beating revenue expectations.

The roughly $3.6 billion year over year positive swing in Bank of America’s (BAC - Analyst Report) total earnings is a big contributor to the sector’s strong growth numbers. But it will be unfair to credit Bank of America for all of Finance’s growth thus far. Others like J.P. Morgan (JPM - Analyst Report), Goldman Sachs (GS - Analyst Report) and Citigroup (C - Analyst Report) showed genuine earnings growth on the back of improved capital markets businesses even though the interest rate backdrop continues to be challenging. The regional banks have been unable to show the same growth momentum that we saw from the bulge-bracket firms.

Total earnings for the biggest sector in the S&P 500, the Technology sector, are up +7.5% on +8.1% higher revenues, with only 47.2% of the sector companies beating EPS and revenue estimates. Please keep in mind that the sector’s respectable-looking growth numbers are solely due to Apple’s (AAPL - Analyst Report) strong quarterly report. Exclude Apple from the Tech sector and the Q1 earnings growth rate for the sector drops to a decline of -2.4% (from +7.5%). For the S&P 500, earnings growth will drop to +7.6% if Apple is excluded from the results already out.

Third, as has been the norm in recent quarters, management teams continue to guide lower for the current and following quarters. As a result, estimates for the current quarter, which had fallen quite a bit already in solidarity with the Q1 estimate cuts, have started coming down even more. The chart below shows how earnings growth estimates for Q2 have evolved since the beginning of the year.

The dollar issue has added to the Energy sector’s woes and some concerns about the U.S. economic picture in bringing down this year’s estimates. Current consensus estimates show earnings growth for the S&P 500 to be in the negative for the first three quarters of the year, with the growth rate for the full-year now modestly in the negative. The expectation is that the growth picture starts improving in the last quarter of the year, with the growth pace ramping up to double-digit rates in 2016.