S&P 500 Now Projected to Report a Year-over-Year Decline in Earnings in Q1 2019

During the month of January, analysts lowered earnings estimates for companies in the S&P 500 for the first quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 4.1% (to $38.55 from $40.21) during this period. How significant is a 4.1% 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 1.8%. 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 1.7%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was larger than the five-year, 10-year, and 15-year averages.

In fact, the first quarter marked the largest decline in the bottom-up EPS estimate during the first month of a quarter since Q1 2016 (-5.5%). 

Sector Breakdown

At the sector level, all 11 sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (-22.5%) and Information Technology (-7.3%) sectors. Overall, seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their five- and 10-year averages for the first month of a quarter.

Because of the downward revisions to EPS estimates during the month, the S&P 500 is now projected to report a small year-over-year decline in earnings (-0.8%) for the first quarter. However, earnings estimates for the first quarter have been falling for the past few months. On September 30, the estimated earnings growth rate for Q1 2019 was 6.7%. On December 31, the estimated earnings growth rate for Q1 2019 was 3.3%. Six of the 11 sectors are now predicted to report a decrease in earnings for the first quarter, led by the Information Technology (-8.9%) sector.

If the index reports an actual decline in earnings for the first quarter, it will mark the first year-over-year decline in earnings since Q2 2016 (-3.1%).