Earnings season for the third quarter of 2015 unofficially kicks off on Thursday when Alcoa reports. Similar to the last two quarters, we head into the season with negative top and bottom-line growth expectations for the S&P 500… but as anyone that follows corporate earnings knows, that likely won't stick. Currently the Estimize community is expecting earnings per share (EPS) to decrease 2.2% for the quarter, and revenues to decline 1.7%. Revisions activity has been a prominent feature of this cycle as heightened uncertainty has caused analysts to rethink their initial assumptions and constantly update for the latest news.

So what's driving expectations lower again this quarter?

Lower Year-over-Year Energy Prices

Many of the same concerns from the first half of the year still persist. Weakness in the energy sector remains, with profits anticipated to decline 66% and revenues down 30% year-over-year (YoY). It was initially thought that Q3 would be the first quarter of even year-over-year comparisons. Oil prices initially dropped during the third quarter of 2014 in response to the stronger dollar, therefore making Q3 2015 the first quarter with level comparisons. However, oil prices dropped even further in the third quarter, prolonging the difficult YoY comparisons. Brent Crude Oil is down 22% since the end of Q2, and has fallen 50% YoY. Similarly, West Texas Intermediate ended Q2 at $59.83 a barrel and closed last week at $45.56, down 24%.

There are of course benefactors of lower gas prices, such as the consumer discretionary and industrials sectors, but even so, those benefits are not enough to offset weakness in energy. Ex-energy, S&P 500 growth would be closer to 5%.

China

Worries surrounding China's softening are nothing new, and began in 2012, the first time in 10 years their economy reported yearly GDP below the 9% mark. For the next three years GDP settled in the 7's(%), and now even those lower levels have come into question following the bursting of the Chinese equity bubble this summer. While a topic during the Q2 season, not many companies mentioned what sort of impact a collapsed Chinese economy would have on their future reports, but that will likely change this season. Sectors that will be affected range from consumer discretionary to materials. China is the largest importer of commodities, and waning demand has driven down prices. At the same time, global weakness for certain metals such as aluminum and steel have also made matters worse in China as they are the biggest exporter of those metals. Even gold, typically seen as a safe haven, is suffering due China's spot as the number one importer of the precious metal, behind India.