Record-High Cuts to S&P 500 EPS Estimates for CY 2020

During the first six months of CY 2020, analysts lowered earnings estimates for companies in the S&P 500 for the year. The CY 2020 bottom-up EPS estimate (which is an aggregation of the median 2020 EPS estimates for all the companies in the index) declined by 28.6% (to $126.89 from $177.82) during this period. How significant is a 28.6% decrease in the bottom-up EPS estimate during the first six months of a year? How does this decrease compare to recent years?

During the past five years, the average decline in the (annual) bottom-up EPS estimate during the first six months of a year has been 1.6%. During the past 10 years, the average decline in the (annual) bottom-up EPS estimate during the first six months of a year has been 0.6%. During the past 15 years, the average decline in the (annual) bottom-up EPS estimate during the first six months of a year has been 2.6%. During the past 20 years, the average decline in the (annual) bottom-up EPS estimate during the first six months of a year has been 2.7%. Thus, the decline in the bottom-up EPS estimate recorded during the first six months of CY 2020 was much larger than the five-year average, the 10-year average, the 15-year average, and the 20-year average.

In fact, this marked the largest decrease in the annual EPS estimate for the index over the first six months of the year since FactSet began tracking the annual bottom-up EPS estimate in 1996. The previous record was -24.4%, which occurred in the first six months of CY 2009.

At the sector level, all 11 sectors recorded a decrease in their bottom-up EPS estimate for 2020 during this window, led by the Energy (-104.4%), Consumer Discretionary (-60.8%), and Industrials (-56.0%) sectors. Overall, 10 sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five-year average, 10-year average, 15-year average, and 20-year average for the first six months of a year. The Real Estate sector does not have five years of historical data available yet.

Five of the 11 sectors recorded the largest decline in their annual EPS estimate over the first six months of a year since FactSet began tracking this data in CY 1996: Consumer Discretionary, Energy, Health Care, Industrials, and Real Estate.

As the bottom-up EPS estimate for the index declined during the first six months of the year, the value of the S&P 500 also decreased during this same period. From December 31 through June 30, the value of the index declined by 4.0% (to 3100.29 from 3230.78). This marked the fourth time in the past 20 years in which both the bottom-up EPS estimate and the value of the index decreased during the first six months of a year.

If there is a silver lining in these otherwise negative revision numbers, it is that the pace of the cuts to EPS estimates declined significantly in recent weeks. During the first five months of the year (from December 31 to May 31), the bottom-up EPS estimate for CY 2020 declined by 28.2% (to $127.62 from $177.82). Over the past month (from May 31 to June 30), the bottom-up EPS estimate for CY 2020 declined by 0.6% (to $126.89 from $127.62).