Above Average Drop in S&P 500 EPS Estimate for Q1'16 to Date, as Energy EPS Falls 54%

During the month of January, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the estimates for all the companies in the index) dropped by 4.7% (to $27.76 from $29.14) during this period. How significant is a 4.7% 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 3.3%. 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 1.9%. During the past 10 years, (40 quarters) the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.2%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was larger than the one-year, five-year, and 10-year averages.

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 December 31 through January 28, the value of the index has decreased by 7.4% (to 1893.36 from 2043.94). Assuming the market does not recover to 2043.94 or higher today, this will mark only the sixth time in the past 16 quarters in which both the bottom-up EPS estimate and the value of the index decreased during the first month of a quarter.

At the sector level, eight of the 10 sectors recorded a decline in the bottom-up EPS estimate during the first month of the quarter. However, the Energy sector by far has recorded the largest percentage decline in the bottom-up EPS to date at 54.2% (to $1.36 from $2.96). If this is the final percentage decline for the quarter, it will mark the largest percentage decrease in the bottom-up EPS estimate for the Energy sector for an entire quarter since FactSet began tracking the data in 2002. As of now, the largest percentage decrease in the bottom-up EPS estimate for the Energy sector for a quarter is -50.2% (to $4.17 from $8.38), which occurred in Q1 2015.