Analysts Made Smaller Cuts than Average to S&P 500 EPS Estimates for Q2

During the second quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates of all the companies in the index for the second quarter) dropped by 2.6% (to $40.42 from $41.46) during this period. How significant is a 2.6% 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 ten 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 4.2%. Thus, the decline in the bottom-up EPS estimate recorded during the second quarter was smaller than the 5-year average, the 10-year average, and the 15-year average.

At the sector level, nine sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Materials (-12.7%) and Industrials (-7.4%) sectors. On the other hand, two sectors recorded an increase in their bottom-up EPS estimate during the quarter, led by the Energy (+4.8%) sector. Overall, five sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 5-year average, six sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 10-year average, and six sectors recorded a smaller decrease (or an increase) 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 March 31 through June 30, the value of the index increased by 3.8% (to 2941.76 from 2834.40). Thus, the second quarter marked the fifteenth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased during the quarter.