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Smaller Cuts than Average to S&P 500 EPS Estimates for Q4 to Date

Companies and Earnings

By John Butters  |  November 5, 2018

During the month of October, analysts lowered earnings estimates for companies in the S&P 500 for the fourth quarter. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 1.1% (to $42.11 from $42.56) during this period. How significant is a 1.1% 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 2.1%. During the past fifteen 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 fourth quarter was smaller than the five-year, 10-year, and 15-year averages.

Change in Quarerly EPS in First Month of Quarter

Sector-Level Breakdown

At the sector level, nine sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Utilities (-4.4%) and Industrials (-4.1%) sectors. On the other hand, the Energy (+5.4%) sector was the only sector that recorded an increase in its bottom-up EPS estimate during this time. The Information Technology (0.0%) sector saw no change in its bottom-up EPS estimate during this period. Overall, five sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 10-year average and their 15-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 fourth quarter, the value of the S&P 500 also decreased during this same period. From September 30 through October 31, the value of the index decreased by 6.9% (to 2711.74 from 2913.98). The fourth quarter marked the sixth time in the past 20 quarters in which the both the bottom-up EPS estimate and the value of the index decreased during the first month of the quarter.

Change in 4Q2018 EPS vs Change in Price

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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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