Chart Of The Quarter: Nothing Else Matters

U.S. equity markets rebounded by the greatest amount ever in Q1 to end the quarter with a “keep the dream alive” positive return. This ‘central-bank’-sponsored bounce occurred as S&P 500 earnings expectations plunged 9.6% – the biggest quarterly collapse since Q1 2009. As FactSet details,

During the first quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the estimates for all the companies in the index) dropped by 9.6% (to $26.32 from $29.13) during this period. How significant is a 9.6% decline in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?

During the past year (4 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.0%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.3%. Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was larger than the 1-year, 5-year, and 10-year averages.

In fact, this was the largest percentage decline in the bottom-up EPS estimate during a quarter since Q1 2009 (-26.9%).

At the sector level, nine of the ten sectors recorded a percentage decline in the bottom-up EPS estimate for the first quarter that was larger than the 5-year average for that sector. Six of the ten sectors recorded a percentage decline in the bottom-up EPS estimate for the first quarter that was larger than the 10-year average for that sector.

As the bottom-up EPS estimate for the index declined during the quarter, the value of the S&P 500 increased during this same time frame. From December 31 through March 31, the value of the index increased by 0.8% (to 2059.74 from 2043.94). This quarter marked the 10th time in the past 12 quarters in which the bottom-up EPS estimate decreased during the quarter while the value of the index increased during the quarter.