Analysts Made Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q4

Given concerns in the market about a possible economic slowdown or recession, have analysts lowered EPS estimates more than normal for S&P 500 companies for the fourth quarter?

The answer is yes. During the fourth quarter, analysts lowered EPS estimates for the quarter by a larger margin than average. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q4 for all the companies in the index) decreased by 6.8% (to $53.90 from $57.86) from September 30 to December 31.

In a typical quarter, analysts usually reduce earnings estimates during the quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the quarter has been 3.5%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the quarter has also been 3.3%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the quarter has been 4.2%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during quarter has been 3.8%.

Thus, the decline in the bottom-up EPS estimate recorded during the fourth quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. This quarter also marked the largest decrease in the bottom-up EPS estimate since Q3 2022 (also -6.8%).

At the sector level, nine of the eleven sectors witnessed a decrease in their bottom-up EPS estimates for Q4 2023 from September 30 to December 31, led by the Health Care (-21.3%) and Materials (-13.5%) sectors. On the other hand, the Utilities (+1.9%) and Information Technology (+1.7%) sectors were the only two sectors that recorded an increase in their bottom-up EPS estimates for Q4 2023 during this period.

It is interesting to note that while the bottom-up EPS estimate for Q4 2023 declined by 6.8% during the quarter, the bottom-up EPS estimate for CY 2024 declined by just 1.3% (to $244.45 from $247.66) during this same period.

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