Earnings season starts on Wednesday - here's what you need to know

On Wednesday, aluminum giant Alcoa will report earnings after the market close, marking the unofficial start of first quarter earnings season.

In a note to clients ahead of the report, Jonathan Golub at RBC Capital wrote that earnings for the S&P 500 are expected to decline 4.2% in the first quarter.

This is down from prior expectations for growth of around 4%, and this more than 8% decline in expectations is the largest since the financial crisis.

Here are the four big things Golub is looking for as earnings get underway:

• Earnings Revisions: Year-to-date, 1Q estimates for the S&P 500 have fallen by 8.3%. Excluding Energy, revisions appear far less problematic, nearly in line with historical averages (see Exhibit 2).
• Growth Expectations: Bottom-up growth expectations of -4.2% seem quite ominous. However, when stated ex-Energy (and assuming beats) the result is likely to be 6-7%, plus buybacks (see Exhibit 3).
• Impact of Oil: WTI is down 50% YoY, leading to a 64% decline in 1Q Energy sector EPS. By contrast, crack spreads finished up 5%. Excluding the group, S&P 500 EPS would be 800 bps higher.
• Impact of the Dollar: The dollar appreciated 16% (trade-weighted basis) from 1Q14, subtracting ~150 bps from 1Q earnings growth (100 bps from 2015).

And via Golub, here's a handy schedule showing how many S&P 500 members are reporting each week.

RBC Captial Markets