Smaller Cuts Than Average to S&P 500 EPS Estimates for Q3 To Date

During the first two months of the third quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) has dropped by 0.9% (to $40.63 from $41.00) during this period. How significant is a 0.9% decline 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 2.5%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.6%. During the past 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.8%. Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the third quarter was smaller than the five-year, 10-year, and 15-year averages.

Sector-Level Breakdown

At the sector level, eight sectors have recorded a decline in their bottom-up EPS estimate during the first two months of the quarter, led by the Consumer Staples (-4.0%) sector. On the other hand, two sectors have recorded an increase in their bottom-up EPS estimate during the first two months of the quarter, led by the Telecom Services (+4.6%) sector. One sector (Health Care) has recorded no change in its bottom-up EPS estimate during this period. Overall, eight sectors have recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their five-year and 10-year averages for the first two months of a quarter, while seven sectors have recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 15-year averages for the first two months of a quarter.

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 June 30 through August 30, the value of the index increased by 6.7% (to 2901.13 from 2718.37). Assuming the value of the index does not fall below 2718.37 today, the third quarter will mark the 16th 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 over this same period.