Revision diffusion index
A measure of whether sell-side analyst earnings estimates are being revised up or down across the index, expressed as the share of constituents with positive net revisions over the lookback. The single most predictive sub-component of the regime composite.
Revision diffusion = (# constituents with NTM EPS revisions up − # down) / total covered, over the trailing 4 weeksEarnings revisions are the cleanest forward-looking signal in the public universe. Every quarter, sell-side analysts update their next-twelve-months earnings estimates as guidance, macro data, and competitive dynamics shift. The revision diffusion index compresses the full revision distribution into a single number: the percentage of covered constituents whose NTM EPS estimate moved up over the trailing four weeks minus the percentage that moved down. Positive readings indicate consensus is being upgraded; negative readings indicate consensus is being cut. Historically, revision diffusion turns negative two to four months before a recession-driven earnings recession actually shows up in reported numbers, which is why it is the highest-weighted sub-component of the regime composite when interpreted alongside breadth. The index is sensitive to coverage selection bias (analysts cover the largest names heavily, smaller names lightly), so it is computed on a market-cap-weighted basis and on an equal-weighted basis side by side. A meaningful gap between the two readings is itself a signal: cap-weighted positive while equal-weighted negative is a classic narrow-leadership warning.