Jefferies Analysts Talk Brexit's Effect On Earnings Season

Now that Brexit-related fears have temporarily died down, investors are bracing for another lackluster earnings season ahead, particularly for small caps. According to Jefferies analyst Steven DeSanctis, Q2 will mark the fifth consecutive quarter of falling earnings for small-cap stocks.

Jefferies is forecasting a 3.1 percent drop in small-cap earnings this quarter. To make matters worse, the firm is also calling for a 5.9 percent drop in mid-cap earnings and a 5.4 percent drop in large-cap earnings.

The good news is that DeSanctis anticipates earnings growth will begin turning around in Q3.

Given the expected acceleration in the economy in 2Q as well as the second half of the year, earnings are forecasted to rebound sharply in 3Q and especially in 4Q, he explained.

According to Jefferies, not all small-cap sectors will take a hit in Q2. The firm is calling for a 30.6 percent jump in earnings and a 3.5 percent increase in sales from small cap utilities. In addition, Jefferies is anticipating 6.3 percent earnings growth and 6.5 percent sales growth from small cap financials as well.

So far this year, the iShares Russell 2000 Index (ETF) (NYSE:IWM) is up 0.6 percent, while the SPDR S&P 500 ETF Trust (NYSE:SPY) has gained 2.0 percent.

Disclosure: The author holds no position in the stocks mentioned.