Despite Tariff Concerns, Analysts Making Smaller Cuts than Average to EPS Estimates for Q2

During the first two months of 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 2.1% (to $40.61 from $41.46) during this period. How significant is a 2.1% decline in the bottom-up EPS estimate during the first two months of 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 the first two months of a quarter has been 2.5%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.2%. During the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.1%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the second quarter was smaller than the five-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 first two months of the quarter, led by the Materials (-7.3%) and Industrials (-6.9%) sectors. On the other hand, two sectors recorded an increase in their bottom-up EPS estimate during the first two months of the quarter, led by the Energy (+7.7%) sector. Overall, four sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their five-year average, five 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 first two months of the quarter, the value of the S&P 500 also decreased during this same period. From March 31 through May 30, the value of the index decreased by 1.6% (to 2788.86 from 2834.40). Assuming the price of the index does not rise above 2834.40 today, the second quarter will mark just the 4th time in the past 20 quarters in which the bottom-up EPS estimate and the value of the index both decreased during the first two months of a quarter.