Smallest Cuts to EPS Estimates for Q2 Since Q2'2014

To date for the second quarter of 2017, analysts have 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 EPS estimates for all the companies in the index) has dropped by 2.0% (to $31.50 from $32.13) during this period. How significant is a 2.0% 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 3.0%. 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 for the second quarter to date is smaller than the one-year, five-year, and 10-year averages.

Assuming there is little change in the bottom-up EPS estimate today, this quarter will mark the smallest decline in the bottom-up EPS estimate for the index for a quarter since Q2 2014 (-1.7%).

Sector Breakdown

Seven sectors have recorded a decline in their bottom-up EPS estimate to date for the quarter that is smaller than the five-year average for the sector. One sector that stands out from the pack in terms of below-average cuts to estimates is the Industrials sector. This sector has recorded an increase in the bottom-up EPS estimate of 1.1% (to $7.79 from $7.71) for the second quarter to date. This 1.1% increase is an improvement relative to the average decline of 3.9% over the past five years and the average decline of 4.3% over the past ten years in the bottom-up EPS estimate for this sector during a quarter.

As the bottom-up EPS estimate for the index declined during the quarter, the value of the S&P 500 increased during this same period. From March 31 through June 29, the value of the index increased by 2.4% (to 2419.70 from 2362.72). Assuming the market does not close below 2362.72 today, this quarter will mark the 17th time 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 period.