Analysts Are Raising Quarterly S&P 500 EPS Estimates for the First Time Since Q3 2021

At the end of the earnings season for the second quarter, have analysts lowered EPS estimates more than normal for S&P 500 companies for the third quarter?

The answer is no. During the months of July and August, analysts increased EPS estimates for S&P 500 companies for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q3 for all the companies in the index) increased by 0.4% (to $56.10 from $55.86) from June 30 to August 31.

In a typical quarter, analysts usually reduce earnings estimates during the first two months of a quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.0%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.7%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.4%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.9%.

In fact, this quarter marked the first increase in the bottom-up EPS estimate over the first two months of a quarter since Q3 2021 (+3.8%).

At the sector level, four of the eleven sectors witnessed an increase in their bottom-up EPS estimate for Q3 2023 from June 30 to August 31, led by the Consumer Discretionary (+6.4%), Communication Services (+5.3%), and Information Technology (+3.8%) sectors. On the other hand, seven sectors recorded a decrease in their bottom-up EPS estimate for Q3 2023 during this period, led by the Materials (-12.4%) sector.

While analysts were raising EPS estimates in aggregate for the third quarter, they were also increasing EPS estimates for the fourth quarter. The bottom-up EPS estimate for the fourth quarter increased by 0.6% (to $58.07 from $57.72) from June 30 to August 31.

Given the increases in bottom-up EPS estimates for the third and fourth quarters due to upward revisions to EPS estimates and the larger increase in the bottom-up EPS estimate for the second quarter (+3.6%) due to companies reporting positive earnings surprises, analysts also increased EPS estimates for all of CY 2023 during this time. The bottom-up EPS estimate for CY 2023 rose by 0.9% (to $222.45 from $220.42) from June 30 to August 31.

At the sector level, seven sectors witnessed an increase in their bottom-up EPS estimate for CY 2023 from June 30 to August 31, led by the Consumer Discretionary (+8.2%), Communication Services (+4.2%), and Information Technology (+2.7%) sectors. On the other hand, four sectors recorded a decrease in their bottom-up EPS estimate for CY 2023 during this period, led by the Health Care (-4.3%) and Materials (-3.7%) sectors.

Analysts also increased EPS estimates for CY 2024 during this period, as the bottom-up EPS estimate for CY 2024 rose by 0.9% (to $248.54 from $246.16) from June 30 to August 31.

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