Analysts Making Smaller Cuts Than Average to EPS Estimates for S&P 500 Companies for Q1

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 first quarter?

The answer is no. During the month of January, analysts lowered EPS estimates for the first quarter by a smaller margin than average. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 1.4% (to $55.55 from $56.34) from December 31 to January 31.

In a typical quarter, analysts usually reduce earnings estimates during the first month of a quarter. During the past 5 years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.1%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%. During the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.9%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%.

Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was smaller than the 5-year average, the 10-year average, the 15-year average, and the 20-year average.

At the sector level, 8 of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2024 from December 31 to January 31, led by the Energy (-10.1%) and Materials (-4.4%) sectors. On the other hand, 3 sectors recorded an increase in their bottom-up EPS estimate for Q1 2024 during this period, led by the Information Technology (+0.5%) sector.

While the bottom-up EPS estimate for Q1 2024 declined by 1.4% during the month of January, analysts lowered EPS estimates for CY 2024 by 0.7% (to $242.61 from $244.41) during this same period.

Analysts also usually reduce earnings estimates for the year during the month of January. During the past 5 years, the average decline in the bottom-up EPS estimate for the year during the month of January has been 0.3%. During the past 10 years, the average decline in the bottom-up EPS estimate for the year during the month of January quarter has been 0.5%. During the past 15 years, the average decline in the bottom-up EPS estimate for the year during the month of January has been 1.2%. During the past 20 years, the average decline in the bottom-up EPS estimate for the year during the month of January has been 1.1%. During the past 25 years, the average decline in the bottom-up EPS estimate for the year during the month of January has been 1.2%.

Thus, the decline in the CY 2024 bottom-up EPS estimate recorded during the month of January was larger than the 5-year average and the 10-year average, but smaller than the 15-year average, the 20-year average, and the 25-year average.

At the sector level, 10 sectors witnessed a decrease in their bottom-up EPS estimate for CY 2024 from December 31 to January 31, led by the Energy (-5.7%) and Materials (-2.3%) sectors. The Real Estate sector (0.0%) recorded no change to its CY 2024 bottom-up EPS estimate during this period. None of the sectors witnessed an increase in its bottom-up EPS estimate for CY 2024 from December 31 to January 31.

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