By Kate Gibson

As the U.S. stock market on Monday followed the latest round of earnings, the results so far have the financial sector reporting much of the upside surprises.

With more than 12% of its companies reporting, S&P 500 (SPX) third-quarter earnings have beaten forecasts by almost 38%. Yet that percentage would stand at just 8.8% without financials, according to Ed Yardeni, chief investment strategist, Yardeni Research Inc.

A like trend could be found in looking at the 30 components on the Dow Jones Industrial Average (DJI), according to Nicholas Colas, chief market strategist, BNY ConvergEx Group.

"Overall, market expectations for revenues in the third quarter of 2009 are for a year-over-year decline of 6.1% overall and a 10.8% reduction for non-financial companies," said Colas.

In looking to the fourth quarter of 2009, the Dow 30 stocks are now expected to show a 5.3% improvement on average, with non-financial firms tallying a 1.3% increase, Colas said.

"It is no exaggeration to say that the Dow's recent rally to the 10,000 mark was in large part driven by this shift in expectations," said Colas.

On Monday, energy and utilities paced the broad-market gains as stocks turned solidly higher after indecisive trade earlier on. The Dow industrials rose 102.03 points to 10,097.94. The S&P 500 Index gained 10.35 points to 1,098.03, while the Nasdaq Composite Index (RIXF) added 18.42 points to 2,175.22.

Growth ahead?

The third-quarter earnings growth rate for the S&P 500 improved to negative 22.6% from negative 24.6% last week, "due in part to better-than-expected earnings from a number of companies in the financial sector," said John Butters, director, U.S. earnings, at Thomson Reuters.

"The financial sector is anticipating the highest earnings growth rate for the quarter, while the energy, materials and industrials sectors are expecting the lowest," Butters added.

The share-weighted earnings for financials increased to $13.1 billion from $10.6 billion during the past week, while overall share-weighted earnings for the S&P 500 increased to $137.7 billion from $134.9 billion during the same period, Butters said.

Last week, J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) all came through with positive earnings surprises, while Bank of America Corp. (BAC) disappointed.

And, "some of the regional banks reporting third-quarter results appear to have come in with negative earnings surprises as they continue to ramp up credit losses and increase loan-loss reserves," said Fred Dickson, chief market strategist, Davidson Cos.

"After the J.P. Morgan report investors appeared to raise the bar for the other financials as traders who had seen only the long side of the trade working, decided to 'sell the news' after Goldman Sachs and Citigroup reported despite the fact that both companies reported better-than-expected results," said Robert Pavlik, chief market strategist at Banyan Partners.