Largest Cuts to Quarterly S&P 500 EPS Estimates Since Q3 2017

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%).

Sector-Level Breakdown

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.