Sales: 866.322.8738Support: 877.322.8738
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During the first two months of the quarter, 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 0.7% (to $34.74 from $35.00) during this period. How significant is a 0.7% 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 year (four quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.3%. For 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 3.3%. In 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 4.3%.

Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the fourth quarter was smaller than the one-year, five-year, and 10-year averages. In fact, the fourth quarter of 2017 marked the smallest decline in the bottom-up EPS estimate for the first two months of a quarter since Q2 2011 (+1.5%).

During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 4.3.

Sector Breakdown

At the sector level, seven sectors recorded a decline in their bottom-up EPS estimates during the first two months of the quarter, led by the Industrials sector (-8.0%). The percentage decline in the bottom-up EPS for this sector was much larger than both the five-year average (-3.4%) and the 10-year average (-3.7%) for this period. Downward revisions to EPS estimates for General Electric made a significant contribution to the decline in the bottom-up EPS estimate.

On the other hand, four sectors recorded an increase in their bottom-up EPS estimates during the first two months of the quarter, led by the Energy sector (+16.7%). This sector has recorded a decline in the bottom-up EPS estimate on average over the past five years (-12.1%) and the past 10 years (-7.6%) during the first two months of the quarter. This quarter marked the largest increase in the bottom-up EPS estimate for the Energy sector over the first two months of a quarter since Q2 2011 (+18.0%).

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 September 30 through November 30, the value of the index increased by 5.1% (to 2647.58 from 2519.36). The fourth quarter marked the 18th 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.

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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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