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

During the first two months of 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 35.9% (to $23.67 from $36.93) during this period. How significant is a 35.9% decrease 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 ten years (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has also been 2.4%. During the past fifteen years (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.3%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the second quarter was 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 over the first two months of a quarter since FactSet began tracking this data in Q1 2002. The previous record was -27.8%, which occurred in the first two months of Q1 2009.

At the sector level, all 11 sectors have recorded a decline in their bottom-up EPS estimate during the first two months of the quarter, led by the Energy (-524%), Consumer Discretionary (-112%), and Industrials (-78%) 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 the first two months of a quarter. The Real Estate sector does not have five years of historical data available yet.

Seven of the 11 sectors have recorded the largest decline in their quarterly EPS estimate over the first two months of a quarter since FactSet began tracking this data in Q1 2002: Communications Services, Consumer Discretionary, Consumer Staples, Energy, Health Care, Industrials, and Real Estate.

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 increased during this same period. From March 31 through May 28, the value of the index increased by 17.2% (to 3029.73 from 2584.59). The second quarter marked the twelfth time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first two months of 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 has slowed down in recent weeks.  Over the first six weeks of the second quarter, the average weekly decline in the bottom-up EPS estimate for Q2 2020 was $2.19. Over the past week, the decline in the Q2 2020 EPS estimate was $0.05.