S&P 500 EPS Estimate Drops Only 2.9% for Q3

During the third quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 2.9% (to $29.76 from $30.65) during the quarter. How significant is a 2.9% 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 4.9%. 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 5.6%. Thus, the decline in the bottom-up EPS estimate recorded during the third quarter was smaller than the one-year, five-year, and 10-year averages.

EPS Estimates Down, S&P 500 Value Up

As the bottom-up EPS estimate declined during the quarter, the value of the S&P 500 increased during this same time frame. From June 30 through September 29, the value of the index increased by 2.5% (to 2151.13 from 2098.86). Assuming the market does not close at or below 2098.86 today, the third quarter will mark the sixteenth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased during the quarter.

At the sector level, the Energy sector witnessed the largest percentage decline in the bottom-up EPS estimate at -30.7% (to $1.49 from $2.15). Similar to the index as a whole, the value of the S&P 500 Energy sector also increased (slightly) as the bottom-up EPS estimate decreased. From June 30 through September 29, the value of the S&P 500 Energy sector increased by 0.3% (to 513.68 from 512.39).