Analysts Have Cut S&P 500 EPS Estimates Within Average Ranges for Q3 to Date...

During the first two months of 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 of all the companies in the index for the third quarter) dropped by 3.0% (to $41.64 from $42.90) during this period. How significant is a 3.0% decline in the bottom-up EPS estimate during the first two months of 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 the first two months 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 two months of a quarter has been 2.1%. 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 3.1%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the second 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 first two months of the quarter, led by the Energy (-11.6%) and Materials (-11.2%) sectors. Overall, nine sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five-year average, seven 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 first two months of the quarter, the value of the S&P 500 also decreased during this same period. From June 30 through August 29, the value of the index decreased by 0.6% (to 2924.58 from 2941.76). Assuming the price of the index does not rise above 2941.76 today, the third quarter will mark just the 5th time in the past 20 quarters (but also the third time in the past four quarters) in which the bottom-up EPS estimate and the value of the index both decreased during the first two months of a quarter.