Over the course of the second quarter of 2016, analysts lowered earnings estimates for companies in the S&P 500. The Q2 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 2.6% (to $28.65 from $29.43) during this period. How significant is a 2.6% decline in the bottom-up EPS estimate during 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 a quarter has been 4.7%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.5%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was smaller than the 1-year, 5-year, and 10-year averages.
This was the smallest drop in the bottom-up EPS estimate for quarter since Q2 2015 (-2.2%).
As the bottom-up EPS estimate declined during the quarter, the value of the S&P 500 increased during this same time frame. From March 31 through June 30, the value of the index increased by 1.9% (to 2098.86 from 2059.74). This marked the 15th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased during the quarter.
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.