The reduction in Q1 earnings estimates for S&P 500 companies are higher than historical averages.
Due to growing concerns about the economy, Wall Street analysts have lowered their earnings expectations for large-cap U.S. companies in the first quarter.
While it is not unusual for analysts to adjust their estimates either higher or lower during the quarter, the earnings estimates were lowered this quarter by a larger than normal amount, on average, according to FactSet Research.
Specifically, the first quarter EPS estimate – an aggregation of the median EPS estimates for all the companies in the S&P 500 – has been reduced by 3.5%. The median EPS estimate went from $62.89 per share on December 31 to $60.66 per share on February 27.
It is the most EPS estimates have been lowered since the fourth quarter of 2023 when they were reduced by 5.1%.
Over the past five years, according to John Butters, senior earnings analyst at FactSet, the average decline in the bottom-up EPS estimate in the first two months of a quarter has been 2.6%. The average decline is the same over the past 10 years. Looking even further back, the average drop over the past 15 years has been 2.4% and over the past 20 years it is 3.1%.
So, this quarter’s reduction is above historical averages for various time frames.
Expectations lowered across all sectors
FactSet data also revealed that analysts’ earnings expectations were lowered across all 11 sectors of the economy.
Analysts dropped their expectations the most for the materials sector, with median earnings estimates lowered by 16.2%. The consumer discretionary sector was next with the median EPS lowered by 8.8% over the first two months of the quarter. After that was the consumer staples sector, with earnings estimates lowered by 5.6%, followed by industrials with a 5.3% decline.
Utilities only saw EPS estimates reduced by 0.6%, while information technology saw analysts drop estimates 0.8% in January and February.
Further, EPS estimates for the full calendar year for S&P 500 stocks were lowered by 1% in January and February. This is also higher than five-, 10-, 15-, and 20-year averages. Last year, expectations were reduced by 0.1%, but in 2023, they were lowered by 3.3%. In 2021 and 2022, full year earnings estimates were raised in January and February, according to FactSet.
Only one sector, financials recorded an increase in its bottom-up EPS estimate for calendar year 2025, as analysts bumped up EPS estimates by 1.1%. In the other 10 sectors, analysts lowered their earnings estimates for the year.
Keep in mind, these are just estimates, but they provide a snapshot of what analysts are seeing in the markets right now. Investors should also note that these are averages and stocks within any given sector could buck these trends. As always, it is important to do your own research on individual investments.
