Written by John Butters, FactSet

Over the course of the second quarter of 2016, analysts lowered earnings estimates for companies in the S&P 500. The Q2 bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped by 2.6% (to $28.65 from $29.43) during this period. How significant is a 2.6% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?

EPS Estimate Cuts

During the past year (four quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.7%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.5%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was smaller than the 1-year, 5-year, and 10-year averages.

Bottom-Up EPS Estimates Shrink

This was the smallest drop in the bottom-up EPS estimate for quarter since Q2 2015 (-2.2%).

As the bottom-up EPS estimate declined during the quarter, the value of the S&P 500 increased during this same time frame. From March 31 through June 30, the value of the index increased by 1.9% (to 2098.86 from 2059.74). This marked the 15th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased during the quarter.