During the second quarter, analysts have increased 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 EPS estimates for all the companies in the index) has increased by 0.8% (to $39.35 from $39.03) during this period. How significant is a 0.8% increase in the bottom-up EPS estimate during a quarter? How does this increase compare to recent quarters?
On average, the bottom-up EPS estimate usually decreases during a quarter. During the past five years (20 quarters), the bottom-up EPS estimate has recorded an average decline of 3.4% during a quarter. During the past 10 years (40 quarters), the bottom-up EPS estimate has recorded an average decline of 5.0% during a quarter. During the past 15 years (60 quarters), the bottom-up EPS estimate has recorded an average decline of 3.9% during a quarter.
In fact, the second quarter of 2018 will mark the second largest increase in the bottom-up EPS estimate during a quarter since Q2 2010 (+3.0%). The current record (since 2002) is 5.4%, which occurred in the previous quarter (Q1 2018).
At the sector level, five sectors have recorded an increase in their bottom-up EPS estimate during the quarter, led by the Energy sector (+15.5%). Six sectors have recorded a decrease in their bottom-up EPS estimate during the quarter, led by the Consumer Staples sector (-4.4%). However, nine sectors have recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their five-year average and their 10-year average for a quarter. Seven sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 15-year average for a quarter.
As the bottom-up EPS estimate for the second quarter rose during the quarter, the value of the S&P 500 also increased during this same period. From March 31 through June 28, the value of the index increased by 2.9% (to 2716.31 from 2640.87). Assuming the price of the index does not fall below 2640.87 today, the second quarter will mark the second time since Q4 2010 in which both the bottom-up EPS estimate for the quarter and the value of the index increased during the quarter.
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.