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

Companies and Earnings

By John Butters  |  August 6, 2018

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.

Change in SP 500 Quarterly EPS 1st Month of Quarter

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.

SP 500 Change in Q318 EPS vs Change in Price

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.

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John Butters

Senior Earnings Analyst

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.

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