During the fourth quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 4.7% (to $40.69 from $42.69) during this period. How significant is a 4.7% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?
During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. Thus, the decline in the bottom-up EPS estimate recorded during the fourth quarter was larger than the five-year average, the 10-year average, and the 15-year average.
At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Consumer Discretionary (-15.0%), Energy (-13.3%), Materials (-11.5%), and Industrials (-10.4%) sectors. Overall, seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five-year average, six sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 10-year average, and seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 15-year average.
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 September 30 through December 31, the value of the index increased by 8.5% (to 3230.78 from 2976.74). The fourth quarter marked the 15th 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 this time.
Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His 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, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).
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