Below Average Cuts to S&P 500 Earnings Estimates for Q1'17 Part 1

During the month of January, analysts lowered earnings estimates for companies in the S&P 500 for the first quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 1.5% (to $30.10 from $30.57) during this period. How significant is a 1.5% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters?

During the past year (four quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.5%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.3%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has also been 2.4%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was smaller than the one-year, five-year, and 10-year averages.

Sector Contributions

The two sectors that contributed to the below average decline in the bottom-up EPS estimate for the S&P 500 over the past month are the Energy and Financials sectors. The Energy sector recorded an increase in the bottom-up EPS estimate of 3.5% (to $3.28 from $3.17) during the first month of the quarter. This 3.5% increase is well above the average decline of 39.0% over the past year and the average decline of 13.6% over the past five years in the bottom-up EPS estimate for this sector for an entire quarter. The Financials sector recorded an increase in the bottom-up EPS estimate of 0.2% (to $6.56 from $6.55) during the first month of the quarter. This 0.2% increase is also above the average decline of 2.5% over the past year and the average decline of 3.8% over the past five years in the bottom-up EPS estimate for this sector for an entire quarter.

As the bottom-up EPS estimate declined during the first month of the quarter, the value of the S&P 500 increased during this same time frame. From December 31, 2016 through January 31, 2017 the value of the index increased by 1.8% (to 2278.87 from 2238.83). This marked the 12th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first month of the quarter while the value of the index increased over this same time frame.