Smallest Cuts to EPS Estimates for S&P 500 Companies Since Q2 2011

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%).

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.