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Possible Q2 earnings recession nothing to lose sleep over

Emma Peters

Leigh Drogen of Estimize said an earnings recession is unlikely for the next quarter, citing low estimates and rising oil prices.

Last quarter yielded a 1.2% growth in earnings despite Wall Street’s prediction of negative 2%.

“Most of that was in energy, so obviously with the price of oil going down we saw a huge drop in energy earnings,” Drogen said. “But what happened was the analysts took their numbers way too far down.”

In Q2, similarly pessimistic predictions from Wall Street can be expected to produce further disparity in projections.

“When we see the price of oil this quarter, or last quarter which will affect this quarter’s earnings, it has gone up,” Drogen added. “And so we’re looking for better numbers than the Street is this quarter again and we don’t think there’s going to be an earnings recession."

Currently, the magnitude of potential earnings growth is around negative 1% for this quarter, but there are still a few weeks left for the numbers shift as more data comes in.

Drogen expects big earnings from the tech and health care sectors, which would be consistent with past growth. He cited enterprise software, cyber security, and biotech as particularly promising industries.

Drogen was optimistic looking forward to next quarter and beyond.

“As we go into that Q4, Q1 [FY] 16 period, if the market can hold itself together and we don’t get any huge surprises, it looks like valuations are not going to be all that expensive,” he said.