Third Quarter Earnings Estimates Are Falling

Written byWayne Duggan
Published on24 Sep 2021

The third-quarter earnings season is about a month away. For the past year, consensus analyst earnings estimates for the S&P 500 have risen in the weeks leading up to the beginning of each reporting period. Unfortunately, that trend has reversed course in recent weeks.

Changing Tide?

As of the week ending Sept. 3, Wall Street analysts were projecting $49.30 in S&P 500 earnings per share in the 3rd quarter, according to FactSet. However, over the past 2 weeks, that estimate has fallen to $49.23 and then to $49.11.

At first glance, a 19-cent drop represents just a 0.38% change — certainly nothing to be concerned about in itself. But even this modest decline could be important for 2 reasons.

First, it represents a change of pattern given analysts have been steadily increasing earnings estimates for the entirety of the past year. Second, analysts aren’t cutting earnings estimates on a whim. The underlying reasons for the cuts could be red flags for what’s to come in the months ahead.

A closer look at the FactSet numbers reveals that the biggest earnings estimate cuts over the past 2 weeks have come from the industrial sector (5.5% cut), the consumer discretionary sector (1.8% cut), and the materials sector (1.1% cut).

Overly Conservative Estimates

There’s no question the delta variant of COVID-19 and global supply chain shortages have weighed on the U.S. economy in September — just when many investors had hoped the recovery would pick up steam. The U.S. economy added just 235,000 jobs in August. The impact of the delta variant has been most clear in the foodservice industry, which added 289,600 jobs in July before losing 41,500 jobs in August.

Still, S&P 500 companies reported $52.80 in earnings per share (EPS) in the 2nd quarter, and there’s no obvious reason to expect earnings to drop nearly 7% to $49.11 in the 3rd quarter. In fact, current consensus S&P 500 EPS estimates for the 4th quarter ($51.20) and the 1st quarter 2022 ($51.83) are all below the S&P 500’s actual 2nd-quarter EPS. Unless the U.S. economy completely stagnates over the next 3 quarters, analysts seem to have set an extremely low earnings bar at this point.


The S&P 500 is already trading at about 20 time’s current 2022 EPS estimates of $220 per share. That forward earnings multiple implies stocks are fully valued at this point based on the market’s historical valuation range. If earnings estimates continue to fall, it seems very unlikely the S&P 500 won’t follow suit.

In the meantime, the S&P 500 may continue to struggle anyway in the next several weeks until the beginning of the 3rd-quarter earnings season. One thing that is almost universally bearish for the stock market is uncertainty, and analysts seem to be growing increasingly unsure of what to expect from the 3rd quarter.

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