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

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.

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.