During the first two months of the quarter, analysts lowered earnings estimates for companies in the S&P 500 for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 1.7% (to $33.26 from $33.84) during this period. How significant is a 1.7% 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 year (four 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 five years (20 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.5%. 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 4.3%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the third quarter was smaller than the one-year, five-year, and 10-year averages.
The third quarter marked a tie with Q2 2017 (-1.7%) for the quarter with the smallest decline in the bottom-up EPS estimate for the first two months of a quarter since Q2 2014 (-1.0%).
At the sector level, 10 of the 11 sectors recorded a decline in their bottom-up EPS estimate during the first two months of the quarter. However, the Energy sector was the only sector that witnessed a decline in the bottom-up EPS estimate during this time that exceeded both the 5-year average and the 10-year average for the first two months of the quarter. This sector recorded a decrease in the bottom-up EPS estimate of 18.6% (to $3.51 from $4.31) during the months of July and August. The 5-year average decline for this sector for the first two months of the quarter is -11.7%, while the 10-year average decline for this sector for the same period is -7.0%.
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 increased during this same period. From June 30 through August 31, the value of the index increased by 2.0% (to 2471.65 from 2423.41). This quarter marked the seventeenth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first two months of the quarter while the value of the index increased over this same period.