The firms in the S&P 500 index have been on an historic run over the last few years, both in terms of earnings and stock price. Nothing lasts forever, however, and according to a December 4th report from FactSet Insight, most equity analysts expect that earnings are going to slip in the fourth quarter. FactSet Senior Earnings Analyst John Butters notes that two months into the fourth quarter, consensus analysts EPS estimates for the S&P 500 are down 3.4%. The current price of the index, however, remains very close to its highs for the quarter, showing (at least a short-term) divergence between the two.

Details on S&P 500 EPS estimates trends

S&P 500 EPS Estimates

Butters points out that over the last four quarters, the average decrease in the bottom-up EPS estimate in first two months of the quarter has been 4.2%. Over the last five years (20 quarters), the average decrease in the bottom-up EPS estimate in the first two months of the quarter has come to 2.7%. Over the last decade (40 quarters), the average decline in the bottom-up EPS estimate in the first two months of the quarter has come to 3.6%. That means that the bottom-up EPS estimate recorded in the first two months of the fourth quarter this year was lower than the one-year average and the 10-year average, but higher than the five-year average.

Curiously, although the bottom-up EPS estimate decreased during the first two months of the fourth quarter, the value of the S&P 500 was up notably over this 60 day period. From September 30 through November 30, the S&P 500 was up 8.4% (it moved up to 2080.41 from 1920.03). This was the 14th time out of the past 20 quarters in which the bottom-up EPS estimate declined while value of the index moved up the first 60 days of a quarter.

Butters also highlights that eight of the 10 sectors in the S&P 500 saw a decline in the bottom-up EPS estimate in the first two months of the current quarter, with the Materials (-18.8%) and Energy sectors (-10.6%) down the most. Somewhat anomalously, despite seeing the largest decrease in the sector-level bottom-up EPS estimates for the fourth quarter, both of these sectors enjoyed double-digit increases in value over this same time frame. Of note, the Materials sector zoomed up by 14.1% over these two months, and the Energy sector moved up by 10.4%.

The question is, will the Energy and Materials sectors hold those gains if earnings come in lower as projected by analyst consensus?