During the first quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 3.6% (to $29.49 from $30.59) during this period. How significant is a 3.6% decline in the bottom-up EPS estimate during 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 a quarter has been 4.5%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.3%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.9%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was smaller than the one-year, five-year, and 10-year averages.
As the bottom-up EPS estimate declined during the quarter, the value of the S&P 500 increased during this same time frame. From December 31, 2016 through March 30, the value of the index increased by 5.8% (to 2368.06 from 2238.83). Assuming the closing value of the market for today is above 2238.83, the first quarter will mark the sixteenth quarter in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased over this same time frame.