Larger Cuts than Average to S&P 500 EPS Estimates for Q4

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.