Analysts Increased Quarterly S&P 500 EPS Estimates for the First Time Since Q2 2018

During the third quarter, analysts increased 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 Q3 for all the companies in the index) increased by 4.1% (to $33.08 from $31.78) from June 30 to September 30. How significant is a 4.1% increase in the bottom up EPS estimate during a quarter? How does this increase 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 5.0%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.2%. Thus, while analysts typically lower EPS estimates during a quarter, they increased EPS estimates during Q3 2020.

In fact, this marked the first increase in the bottom-up EPS estimate during a quarter since Q2 2018 (+0.7%) and Q1 2018 (+5.4%). Prior to Q1 2018, the last time the bottom-up EPS estimate increased during a quarter was Q4 2010 (+0.6%). However, it should be noted that analysts made substantial cuts to EPS estimates for Q3 during the second quarter (March 31 to June 30). During this period, the Q3 bottom-up EPS estimate declined by 23.6% (to 31.78 from $41.60).

At the sector level, six sectors recorded an increase in their bottom-up EPS estimate for Q3 during the quarter, led by the Consumer Discretionary (to $7.17 from $5.41), Energy (to -$0.70 from -$0.86), Financials (to $6.98 from $6.29), and Materials (to $3.82 from $3.48) sectors. Four sectors recorded a decline in their bottom-up estimate for Q3 during the quarter, led by the Industrials (to $3.76 from $3.98) and Utilities (to $5.00 from $5.20) sectors. One sector (Real Estate) recorded no change in its bottom-up estimate for Q3 during the quarter.

As the bottom-up EPS estimate for the index increased during the quarter, the value of the S&P 500 also increased during this same period. From June 30 through September 30, the value of the index increased by 8.5% (to 3363.00 from 3100.29). The third quarter marked just the second time in the past 20 quarters in which both the bottom-up EPS estimate for the index and the value of the index increased during the quarter.

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