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, third-quarter
earnings for firms in the S&P 500 Index (SPX) have beaten
forecasts by almost 38%. Yet that percentage would stand at just
8.8% without financials, according to Ed Yardeni, chief investment
strategist at Yardeni Research Inc.
A similar trend could be found in looking at the 30 components
on the Dow Jones Industrial Average (DJI), according to Nicholas
Colas, chief market strategist at 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 nonfinancial companies," said Colas.
In looking to the fourth quarter of 2009, stocks in the Dow are
now expected to show a 5.3% improvement on average, with
nonfinancial firms tallying a 1.3% increase, he added.
"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," elaborated Colas.
On Monday, energy and utilities paced the broad-market gains as
stocks turned solidly higher after indecisive trading earlier on,
with the major indexes finishing at their highest levels so far
this year. The Dow industrials rose 96.28 points, or 1%, to
10,092.19. The S&P 500 gained 10.23 points, or 0.9%, to
1,097.91, while the Nasdaq Composite Index (RIXF) added 19.52
points, or 0.9%, to 2,176.32.
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 of U.S. earnings
at Thomson Reuters. "The financial sector is anticipating the
highest earnings growth rate for the quarter, while the energy,
materials and industrial sectors are expecting the lowest."
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
commented.
Last week, J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C)
and Goldman Sachs Group (GS) all came through with positive
earnings surprises, while Bank of America Corp. (BAC)
disappointed.
"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 at 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.