Analysts Making 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 months of October and November, analysts lowered EPS estimates for the fourth 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 5.0% (to $54.95 from $57.86) from September 30 to November 30.

In a typical quarter, analysts usually reduce earnings estimates during the first two months of a quarter. 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 2.9%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.7%. 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 3.2%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.9%.

Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the fourth quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. In fact, this quarter marked the largest decrease in the bottom-up EPS estimate over the first two months of a quarter since Q1 2023 (-5.6%).

At the sector level, ten of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q4 2023 from September 30 to November 30, led by the Health Care (-19.9%) sector. On the other hand, the Information Technology sector (+1.5%) is the only sector that recorded an increase in its bottom-up EPS estimate for Q4 2023 during this period.

It is interesting to note that while the bottom-up EPS estimate for Q4 2023 declined by 5% during the past two months, the bottom-up EPS estimate for CY 2024 declined by just 0.5% (to $246.30 from $247.66) during this same period.

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