Smallest Increase in EPS Estimates for S&P 500 Companies for Q4 Over the Past Five Quarters

During the month of October, analysts have increased 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 Q4 for all the companies in the index) has increased by 0.9% (to $51.53 from $51.06) during this period. How significant is a 0.9% increase in the bottom-up EPS estimate during the first month of a quarter? How does this increase compare to recent quarters?

In a typical quarter, analysts usually reduce earnings estimates during the first month of the quarter. 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 1.4%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.0%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.2%.

In fact, the fourth quarter marked the sixth consecutive quarter in which the bottom-up EPS estimate increased during the first month of the quarter, which is the longest streak since FactSet began tracking this metric in 2002. The previous record was four quarters, which occurred in Q1 2004 through Q4 2004. However, it should also be noted that the fourth quarter marked the lowest percentage increase in the bottom-up EPS estimate during these six quarters.

At the sector level, six sectors have recorded an increase in their bottom-up EPS estimate for Q4 during the first month of the quarter, led by the Energy (+21.5%) and Materials (+4.7%) sectors. On the other hand, five sectors have recorded a decline in their bottom-up estimate for Q4 during this period, led by the Industrials (-8.2%) sector.

As the bottom-up EPS estimate for the index increased during the first month of the quarter, the value of the S&P 500 also increased during this same period. From September 30 through October 28, the value of the index increased by 6.7% (to 4596.42 from 4307.54). With the index closing at a new record high of 4605.38 at the end of October, the fourth quarter marks the fifth time in the past 20 quarters (and the third straight quarter) in which both the bottom-up EPS estimate for the index and the value of the index increased during the first month of a quarter.

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