It's official: We are in an earnings recession. With 98 percent of the S&P 500 companies having reported third-quarter earnings, profits shrunk by 1.7 percent, according to FactSet. They fell 0.4 percent in the second quarter, and the two consecutive quarters of contraction fit the common definition of an earnings recession, just as two consecutive quarters of shrinking GDP constitute an economic recession.
It may not get better any time soon. FactSet’s projections for the fourth quarter forecast another contraction, with S&P 500 earnings expected to be down another 4.3 percent.
The primary culprit in all of this is the energy sector, reeling from the falling price of oil. Energy sector profits fell 57 percent in the third quarter, after falling 56 percent in the second and 57 percent in the first. Goldman Sachs estimated that S&P 500 profits will rise 10 percent in 2016, largely because they expect a recovery in energy profits.