Smaller Cuts Than Average to S&P 500 EPS Estimates for Q3 in July

During the month of July, analysts lowered earnings estimates for companies in the S&P 500 for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 0.6% (to $40.76 from $41.00) during this period. How significant is a 0.6% decline in the bottom-up EPS estimate during the first month 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 month of a quarter has been 1.6%. During the past ten years (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.2%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.6%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the third quarter was smaller than the five-year, 10-year, and 15-year averages.

Sector-Level Breakdown

At the sector level, seven sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (-3.1%) and Consumer Staples (-3.0%) sectors. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate during the first month of the quarter, led by the Telecom Services (+4.1%) sector. One sector (Financials) recorded no change in its bottom-up EPS estimate during the month of July. Overall, eight sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their five-year average and their 15-year average for the first month of a quarter, while nine sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 10-year average for the first month of a quarter.

As the bottom-up EPS estimate for the index declined during the first month of the quarter, the value of the S&P 500 increased during this same period. From June 30 through July 31, the value of the index increased by 3.6% (to 2816.29 from 2718.37). The third quarter marked the 14th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first month of the quarter while the value of the index increased over this same period.