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 of all the companies in the index) dropped by 3.8% (to $40.93 from $42.56) during this period. How significant is a 3.8% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?
Over the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.1%. Over the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.5%. Over the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.9%. Thus, the decline in the bottom-up EPS estimate recorded during the fourth quarter was larger than the five-year average, but smaller than the 10-year average and the 15-year average.
However, the fourth quarter did mark the largest percentage decline in the bottom-up EPS estimate during a quarter since Q3 2017 (-3.9%).
At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Materials (-9.5%), Utilities (-8.9%), and Energy (-7.3%) sectors.
As the bottom-up EPS estimate for the index declined during the quarter, the value of the S&P 500 also decreased during this same period. From September 30 through December 31, the value of the index decreased by 14.0% (to 2506.85 from 2913.98). The fourth quarter marked just the third time in the past 20 quarters in which the both bottom-up EPS estimate and value of the index decreased during the quarter.
It is interesting to note that the bottom-up EPS estimate for CY 2019 decreased by 2.3% (to $173.94 from $178.05) during the fourth quarter. This decline was larger than the 5-year average (-1.8%) decrease in the annual bottom-up EPS estimate during the fourth quarter, but smaller than the 10-year (-3.6%), 15-year (-2.4%) and 20-year (-3.1%) average decreases in the annual bottom-up EPS estimate during the fourth quarter.
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.