Largest Cuts to S&P 500 EPS Estimates Since Q1 2017

During the first two months of 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 of the companies in the index) has dropped by 2.6% (to $41.45 from $42.56) during this period. How significant is a 2.6% decline in the bottom-up EPS estimate during the first two months of 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 the first two months of a quarter has been 2.4%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.3%. During the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.9%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of 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 does mark the largest percentage decline in the bottom-up EPS estimate over the first two months of a quarter since Q1 2017 (-3.2%).

Sector-Level Analysis 

At the sector level, 10 sectors have recorded a decline in their bottom-up EPS estimate during the first two months of the quarter, led by the Materials (-10.1%), Utilities (-7.5%), and Industrials (-5.8%) sectors. On the other hand, the Energy (+2.1%) sector is the only sector that has recorded an increase in their bottom-up EPS estimate during this time.

As the bottom-up EPS estimate for the index declined during the first two months of the quarter, the value of the S&P 500 also decreased during this same period. From September 30 through November 29, the value of the index decreased by 6.0% (to 2737.76 from 2913.98). Assuming the value of the index does not rise above 2913.98 today, the fourth quarter will mark 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 first two months of the quarter.