S&P 500 companies warn on lower Q2 earnings

Almost one-fifth of S&P 500 companies expect to announce a decline in earnings when they report second quarter 2019 performance. Information technology companies were the most common to announce negative earnings, with 26 so far telling investors to expect a decline, according to data from FactSet. The sector is the largest in the index by market cap, with more than $8 trillion in equity value. Technology stocks, however, are the most common to provide negative guidance, with an average 20.4 companies per quarter expecting lower earnings.

The lower expectations follow a volatile quarter where, despite a 3.8% gain, the index still experienced a 6.6% loss in May. The good news for the markets is that higher negative earnings expectations typically show little correlation to the following quarter's performance. While there have been down quarters following weak EPS estimates, and lower frequencies of such generally lead to better index returns, higher frequencies show more mixed outcomes. In the first quarter of 2016, 92 index S&P 500 companies told shareholders that earnings would be lower amid one of the worst starts to a year in the index's history, and the still index managed a 1.9% gain in the subsequent quarter. Counter to this outcome, the index fell 6.9% in the third quarter of 2015 when 80 companies said their second quarter 2015 earnings would be lower.