Record-High Cuts to S&P 500 EPS Estimates for Q2 2020

During the second quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index) declined by 37.0% (to $23.25 from $36.93) during this period. How significant is a 37.0% decrease 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 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.4%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.6%. Thus, the decline in the bottom-up EPS estimate recorded during the second quarter was much larger than the five-year average, the 10-year average, and the 15-year average.

In fact, this marked the largest decline in the quarterly EPS estimate during a quarter since FactSet began tracking this data in Q1 2002. The previous record was -34.3%, which occurred in Q4 2008.

At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the quarter, led by the Energy (-488.0%), Consumer Discretionary (-122.5%), and Industrials (-85.7%) sectors. Overall, 10 sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five-year average, 10-year average, and 15-year average for a quarter. The Real Estate sector does not have five years of historical data available yet.

Six of the 11 sectors recorded the largest decline in their quarterly EPS estimate during a quarter since FactSet began tracking this data in Q1 2002: Consumer Discretionary, Consumer Staples, Energy, Health Care, Industrials, and Real Estate.

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 March 31 through June 30, the value of the index increased by 20.0% (to 3100.29 from 2584.59). The second quarter marked the fifteenth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased.

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 two months of the second quarter (from March 31 to May 31), the bottom-up EPS estimate for Q2 2020 declined by 35.8% (to $23.69 from $36.93). Over the last month of the second quarter (from May 31 to June 30), the bottom-up EPS estimate for Q2 2020 declined by 1.9% (to $23.25 from $23.69).