Analysts Are Continuing to Raise Quarterly S&P 500 EPS Estimates in Q4

During the month of October, analysts increased 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 median EPS estimates for Q4 for all the companies in the index) increased by 1.8% (to $36.72 from $36.08) during this period. How significant is a 1.8% increase in the bottom-up EPS estimate during the first month of a quarter? How does this increase compare to recent quarters?

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 2.6%. 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%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.4%. Thus, while analysts typically lower EPS estimates during the first month of a quarter, they increased EPS estimates during the first month of Q4 2020.

In fact, this marked just the third time since 2011 that the bottom-up EPS estimate increased over the first month of a quarter. Since 2011, the only two other quarters in which the bottom-up EPS estimate increased during the first month of the quarter are Q1 2018 (+4.9%) and Q2 2020 (+1.4%).

However, it should be noted that analysts made substantial cuts to EPS estimates for Q4 during the second quarter (March 31 to June 30). During this period, the Q4 bottom-up EPS estimate declined by 16.4% (to $36.58 from $43.71)

At the sector level, only three sectors recorded an increase in their bottom-up EPS estimate for Q4 during the first month of the quarter: Financials (+14.0%), Communication Services (+7.6%), and Materials (+6.3%). Seven sectors recorded a decline in their bottom-up estimate for Q4 during the first month of the quarter, led by the Energy (-84.4%) sector. However, the other six sectors witnessed declines of 4% or less. One sector saw no change during this time.

As the bottom-up EPS estimate for the index increased during the first month of the quarter, the value of the S&P 500 decreased during this same period. From September 30 through October 31, the value of the index decreased by 2.8% (to 3269.96 from 3363.00). This marked the first time since Q1 2010 in which the bottom-up EPS estimate for the index increased during the first month of a quarter while the value of the index decreased during this period.

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