Analysts Continue to Raise Quarterly EPS Estimates for S&P 500 Companies in Q1

During the month of January, analysts increased earnings estimates for companies in the S&P 500 for the first quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) increased by 3.2% (to $38.82 from $37.60) during this period. How significant is a 3.2% increase in the bottom-up EPS estimate during the first month of a quarter? How does this increase compare to recent quarters?

In a typical quarter, analysts usually reduce earnings estimates during the first month of the quarter. 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 2.2%. 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 2.4%. 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 2.2%.

In fact, the first quarter marked the second-highest increase in the bottom-up EPS estimate during the first month of a quarter since Q2 2010, trailing only Q1 2018 (+4.9%). It also marked the third straight quarter (but just the fourth quarter since Q2 2011) in which the bottom-up EPS estimate increased over the first month of a quarter. However, it should be noted that analysts made substantial cuts to EPS estimates for Q1 2021 during the first half of 2020 (December 31 to June 30). During this time, the Q1 bottom-up EPS estimate declined by 16.5% (to $37.40 from $44.78)

At the sector level, seven sectors have recorded an increase in their bottom-up EPS estimate for Q1 during the first month of the quarter, led by the Energy (+59%), Financials (+10%), and Information Technology (+6%) sectors. Four sectors have recorded a decline in their bottom-up estimate for Q1 during the first month of the quarter, led by the Industrials (-15%) sector.

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 December 31 through January 29, the value of the index decreased by 1.1% (to 3714.24 from 3756.07). The first quarter marked just the second time in the past 20 quarters (but also the second straight quarter) in which the bottom-up EPS estimate for the index increased during the first month of the quarter while the value of the index decreased over this same period.

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