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%).
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.
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.