Smallest Cuts to EPS Estimates for S&P 500 Companies since 2014

During the month of October, analysts lowered earnings estimates for companies in the S&P 500 for the fourth quarter. The Q4 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 1.2% (to $31.17 from $31.54) during this period. How significant is a 1.2% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters?

During the past year (four quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.6%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.4%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has also been 2.4%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the fourth quarter was smaller than the one-year, five-year, and 10-year averages.

In fact, this marks the smallest decrease in the bottom-up EPS estimate over the first month of a quarter since Q2 2014 (+0.4%).

As the bottom-up EPS estimate declined during the first month of the quarter, the value of the S&P 500 also decreased during this same time frame. From September 30 through October 31, the value of the index decreased by 1.9% (to 2126.15 from 2168.27). This marked the seventh time in the past 20 quarters in which the bottom-up EPS estimate and the value of the index both decreased during the first month of a quarter.

Sector Overview

At the sector level, the Information Technology sector has recorded an increase in the bottom-up EPS estimate (+0.8%) during the first month of the quarter for the second straight quarter. This 0.8% increase is well above the average decline of 3.6% over the past year and the average decline of 3.8% over the past five years in the bottom-up EPS estimate for the first month of the quarter for this sector. The Information Technology sector is one of just two sectors in which more companies have issued positive EPS guidance (12) than negative EPS guidance (nine) for Q4 2016 to date.