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Largest Cuts to S&P 500 EPS Estimates Over the First Month of a Quarter Since Q2 2020

Written by John Butters | Nov 6, 2023

Given concerns in the market about a possible economic slowdown or recession, have analysts lowered EPS estimates more than normal for S&P 500 companies for the fourth quarter?

The answer is yes. During the month of October, analysts lowered EPS estimates for the fourth quarter by a larger margin than average. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q4 for all the companies in the index) decreased by 3.9% (to $55.61 from $57.86) from September 30 to October 31.

In a typical quarter, analysts usually reduce earnings estimates during the first month of a quarter. During the past 5 years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.9%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%. During the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.0%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.7%.

Thus, the decline in the bottom-up EPS estimate recorded during the first month of the fourth quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. In fact, this marked the largest decrease in the bottom-up EPS estimate during the first month of a quarter since Q2 2020 (-29.1%).

At the sector level, 8 of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q4 2023 from September 30 to October 31, led by the Health Care (-16.5%) sector. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate for Q4 2023 during this period, led by the Utilities (+1.5%) sector.

It is interesting to note that while the bottom-up EPS estimates for Q4 2023 declined by nearly 4% during the month of October, analysts lowered EPS estimates for CY 2024 by just 0.4% (to $246.59 from $247.66) during this same period.

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