Looking at SP 500 Bottom-up Estimate Revisions

  • Using IBES by Refinitiv data, the weekly changes in bottom-up earnings estimates for companies within the SP 500 are monitored for estimate changes.
  • The spreadsheet tracks the IBES data by week so that it can be monitored for changes in overall trends within the SP 500’s 11 sectors.
  • The areas of heavy blocking represent the heaviest reporting period by quarterly earnings season for Q1, Q2, and Q3 of 2018.

A couple points of interest:

1.) The number of positive revisions or “peak positive” revisions if you scan the highlighted areas have slowly declined in 2018, but not alarmingly so. Note the period from April 20 to May 18, 2018: “peak positive” revisions were 69% of the total versus 65% in July – August ’18 (2nd quarter earnings) and 62% in October – November, or 3rd quarter earnings.

2.) This data is supported by the absolute number positive revisions in each quarter, with Q1 ’18 seeing a maximum of 1,791 positive revisions, while Q2 ’18 saw peak of 1,625, and Q3 ’18 saw a peak of 1,408.

The key question is, “Does this revision data signal a change in trend for SP 500 earnings ?” and my own answer is “not yet”.

LizAnn Sonders, Schwab’s strategist, and Bob Doll of Nuveen, noted early on a weakening of the earnings numbers and it has shown up in the “forward 4-quarter growth rate” but monitoring the 2019 SP 500 calendar estimate for the last 6 months, 2019 was always expected to be slower, but the fact is 2019 SP 500 EPS estimate has slowed to 8% y/y growth, from 10% expected growth just 2 months ago.

Again, the important question is, “Does this represent a material and relevant change in trend in the forward expectations of SP 500 earnings ?”

And my answer is – and it could be wrong – “not yet” or to put it more bluntly, “no”.

Click to enlarge / enhance


One last graph that should be posted is good data by Estimize, the Leigh Drogen-founded earnings analysis firm that does a nice job of tracking corporate earnings. The above graph, which is received every two weeks from Estimize shows revisions by sector, which I think is important data. Not being a fan of “crowd-funding” analysis, I do think earnings revisions by sector is an important indicator of relative value within the SP 500.

This graph still shows the old Telco sector rather than the “new” Communications Services sector, but at least according to the Estimize data from 11/26/19, positive revisions still outnumber negative revisions for the sector with the biggest impact on the SP 500’s market cap including Tech, Health Care, Financials, and Consumer Discretionary.

Summary / Conclusion: Readers should take all opinions about forward looking expectations of SP 500 earnings with a grain of salt, but this blog has always tried to give readers incremental information about what is a very important aspect to the stock market: expectations around forward earnings for the SP 500, and how those estimates have changed. The inclusion of the Estimize graph is to give a shout out to the company, since I’ve asked IBES by Refinitiv if they have revisions data by sector, and Refinitiv apparently does not.

One thing for readers to be alert to as we head into the last few weeks of December and early January ’19 is material earnings pre-announcements by any sector leader. In September of 2000, when the Tech and large-cap growth bubble started to unravel, Intel led off the unraveling with a pre-announcement of an earnings and revenue miss around slowing PC growth.

Apple would be the most likely candidate for a negative preannouncement with the stock down 27% of its all-time-high of $230. Facebook too. “New Tech” is at greater risk in my opinion than “Old Tech” or the original growth babies of the 1990’s i.e Microsoft, Cisco, Intel, etc. (Long all mentioned.)

With last night’s blog post, the goal was to show that this is still just a “normal” correction for the SP 500.

Thanks for reading. More to come tomorrow.






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