• S&P 500 Q3 earnings expected to dip 20.5% year over year
  • 30 S&P 500 companies will report this week
  • 46 of 69 companies issued positive guidance, above 5-year average
  • Analysts have hiked estimates by 4.1% during the third quarter

The estimated earnings decline for the S&P 500 in Q3 is 20.5%, according to analysts polled by FactSet. This would mark the second largest year-over-year decline in earnings reported by the index since Q2 2009 (-26.9%). Since today is a federal holiday in the U.S., third quarter earnings season will kick-off in earnest tomorrow. A total of 30 S&P 500 companies (6 are also Dow 30 components) will report this week including JPMorgan Chase, Johnson & Johnson, Delta Air Lines, United Airlines, Goldman Sachs, Bank of America and Morgan Stanley.

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Predictions are understandably difficult to make this year, and just 69 companies have issued EPS guidance, well below the 5-year average of 104. There's a decent chance the third quarter dip won't be as terrible as forecast, similar to last quarter when a record 84% of companies reported positive EPS surprises. Keep in mind this followed record-high cuts to estimates so the bar was low.

On average over the past five years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 5.6%, so the actual earnings decline for the Q3 could be much smaller at around -17.6%. There's also been growing optimism around upcoming results as the recovery accelerated. Analysts usually reduce earnings estimates during a quarter, but this time they actually hiked estimates by 4.1% from the start of the quarter on June 30 to the end on September 30. The percentage of companies issuing positive EPS guidance is 67% (46 out of 69), which is above the 5-year average of 32%.