Chief strategists and investment officers say that while Q1 2011 is shaping up to set records for earnings-per-share profits, earnings surprises have nevertheless been subdued, and this quarter has been a slow one in terms of gross domestic product growth.
S&P 500 earnings per share for the first quarter of 2011 may set a record as the highest first-quarter EPS in history, predicted Jeff Kleintop, chief market strategist for LPL Financial in an April 11 earnings preview. But Kleintop added that corporate profits have slowed as businesses have stepped up spending on materials, capital and labor.
“For the S&P 500 companies as a whole,” Kleintop (left) wrote, “the consensus of analysts’ estimates points to average earnings per share growth in the first quarter of 2011 of 13% from one year ago, not much above the 8% growth rate of sales, as the rise in profit margins has slowed as businesses have stepped up spending on materials, capital and labor.”
So far, financial services companies of greatest interest to advisors that have reported earnings are Bank of America Merrill Lynch, Bank of New York Mellon, BlackRock, Charles Schwab, Citigroup, Goldman Sachs, Janus, JPMorgan, Morgan Stanley, Raymond James, TD Ameritrade, T. Rowe Price and Wells Fargo.
Looking at the Finance sector’s performance, J.P. Morgan Asset Management Chief Strategist David Kelly said Q1 2011 was a slow quarter in terms of GDP growth, which clocked in at about 1% to 2% for the quarter.
“Growth is not strong right now, but for financial companies, it appears to have been strong enough,” Kelly (left) said. “What’s helping financial companies is a continued recovery from the financial crisis and the recession, which is bringing down delinquency rates and write-offs, and that is improving net income. There isn’t much loan growth, but there is an improvement in loan performance.”
Kleintop’s LPL colleague, Chief Investment Officer Burt White, said in an April 21 phone interview that he was seeing subdued earnings surprises in the first days of the Q1 2011 reporting season.
“In the first 10 days of earnings season, we were getting about 80% of companies beating expectations, and an 80% to 85% range is what we’ve seen in the last six to seven quarters, so that’s in line. But the earnings surprises were much lower,” White said. “Through the first
10 days of this earnings season, the beat was more like 1%. So companies were still beating, by a relatively large percentage, but not by a big margin. They were beating, but barely. The market didn’t like that very much.”