During the third quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for the third quarter of all the companies in the index) dropped by 3.6% (to $41.35 from $42.90) during this period. How significant is a 3.6% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?
During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. During the past fifteen years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.3%. Thus, the decline in the bottom-up EPS estimate recorded during the third quarter was larger than the five-year average and the 10-year average, but smaller than the 15-year average.
At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Energy (-17.5%) and Materials (-12.4%) sectors. Overall, seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five-year average, eight sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 10-year average, and five sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 15-year average.
As the bottom-up EPS estimate for the index declined during the quarter, the value of the S&P 500 increased during this same period. From June 30 through September 30, the value of the index increased by 1.2% (to 2976.74 from 2941.76). The third quarter marked the 15th time in the past 20 quarters in which the bottom-up EPS decreased while the value of the index both increased during a quarter.