During the first quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates of all the companies in the index) dropped by 7.2% (to $37.33 from $40.21) during this period. How significant is a 7.2% 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 3.2%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.7%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.0%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was larger than the 5-year average, the 10-year average, and the 15-year average.
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In fact, the first quarter marked the largest percentage decline in the bottom-up EPS estimate during a quarter since Q1 2016 (-9.8%).
At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Energy (-34.0%), Materials (-16.3%), and Information Technology (-8.3%) sectors. The Energy sector witnessed the largest decline in its bottom-up EPS estimate for a quarter since Q1 2016 (-108.6%). The Materials sector saw the largest decline in its bottom-up EPS estimate for a quarter since Q4 2016 (-17.1%). The Information Technology sector recorded the largest decline in its bottom-up EPS estimate for a quarter since Q4 2012 (-10.0%). Overall, ten sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 5-year average, while nine sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 10-year average and 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 December 31 through March 28, the value of the index increased by 12.3% (to 2815.44 from 2506.85). Assuming the price of the index does not fall below 2506.85 today, the first quarter will mark the 15th time in the past 20 quarters.
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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.
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