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Analysts Cut S&P 500 EPS Estimates Within Average Ranges for Q3 in July

Earnings

By John Butters  |  August 5, 2019

During the month of July, analysts lowered earnings estimates for companies in the S&P 500 for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 1.6% (to $42.21 from $42.90) during this period. How significant is a 1.6% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters?

Change in SP 500 Quarterly First Month of 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 1.7%. 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 1.2%. 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 1.8%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the third quarter was smaller than the five-year average, larger than the 10-year average, and smaller than the 15-year average.

EPS Change in Price

At the sector level, eight sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Materials (-8.4%) and Energy (-7.4%) sectors. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate during the first month of the quarter, led by the Information Technology (+1.6%) sector. 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 seven 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 first month of the quarter, the value of the S&P 500 increased during this same period. From June 30 through July 31, the value of the index increased by 1.3% (to 2980.38 from 2941.76). The third quarter marked the fifteenth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first month of the quarter while the value of the index increased over this same period.

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John Butters

Senior Earnings Analyst

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.

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