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

Earnings estimates have come down sharply over the last few months and the negative revisions trend has been particularly pronounced for Q1. As a result, earnings growth has turned negative for the first half of the year and remains barely in the positive territory in the back half. In a way, all the prior growth hopes for 2015 have disappeared and now show up in next year’s estimates.

This barrage of negative revisions has prompted some to hope that estimate cuts may have gone a bit too far. We don’t see much evidence for that narrative in the 16 February quarter results that we have seen already. But it’s way too early to dismiss that notion altogether.

For the 2015 Q1 earnings season as a whole, here are the 3 key points to keep in mind.

First, the magnitude of negative revisions for Q1 is greater than what we have seen for any other recent quarter. The chart below shows the magnitude of negative revisions for each quarter since 2013 Q2. As you can see, 2015 Q1 estimates have fallen -8.4% since January 1st, the most of any other recent quarter in the comparable period. Please note that the ‘average’ represents the average for the 7-quarter period through 2014 Q4.

The Energy sector is undoubtedly the big reason why the revisions trend for Q1 stands out to this extent, but the picture isn’t much better outside of the Energy sector either. The chart below shows the evolution of 2015 Q1 total earnings growth estimates, with and without the Enerrgy sector.

Stronger growth in the Finance and Medical sectors are driving most of the +4.1% ex-Energy growth for the S&P 500. But keep in mind that Finance’s +9.2% earnings growth in Q1 is solely due to easy comparisons at Bank of America (BAC - Analyst Report) and something similar is at play with role of Gilead Sciences (GILD - Analyst Report) in the Medical sector’s growth. Earnings growth for the Technology sector turns negative once Apple (AAPL - Analyst Report) is excluded from the sector’s estimates. All in all, the +4.1% ex-Energy sector growth for the S&P 500 disappears once these three companies are excluded from the aggregate data.

Second, it’s not just the growth rate that is so low in Q1; total aggregate earnings for the S&P 500 index are expected to be the lowest since the fourth quarter of 2012 as well. Aggregate earnings have been in record territory in recent quarters, with each of the preceding three quarters producing all-time record quarterly totals.

The chart below shows the aggregate earnings tally for the S&P 500 index

The 2014 Q4 tally was an all-time quarterly record, which wouldn’t be surpassed till the final quarter of the year. But given the negative revisions trend currently in place, those estimates will likely come down.  

Third, as discussed earlier, growth estimates for the first half of the year have taken a severe beating over the last few months, with positive growth estimates getting replaced by outright earnings declines. The chart below shows the evolution of 2015 Q1 and Q2 earnings growth estimates since mid-December 2014. As you can see, positive growth in the first half of the year has evaporated.

The revisions trend has been negative for more than two years now, with the trend gaining pace over the last few months under the combined effect of Energy sector weakness, dollar strength, and global growth worries. With estimates for 2015 Q2 already down quite a bit in solidarity with the what was happening to Q1 estimates, it will be interesting to see how much more they have fall as companies provide updated guidance on the Q1 calls. As you can see in the above, earnings are expected to be down -4.3% in 2015 Q2.