Early reports for the finance sector’s third-quarter 2012 performance indicate that it is on track to best all other sectors, at overall profits of 11.8%, in what looks to be an otherwise lackluster earnings season.
Both S&P Capital IQ and Thomson Reuters expect that the companies of the S&P 500 index in Q3 will post their first year-over-year earnings decline in almost three years. But while earnings expectations are at a three-year low, the stock market index is at a four-year high, said S&P Capital IQ Global Markets Intelligence senior manager Christine Short during an earnings outlook webinar on Monday.
Short also took note of the finance sector’s relative strength, saying that stock analysts expect it to post the highest quarterly earnings out of the 10 industrial sectors.
“Only the financial sector is expected to post double-digit growth, of 11.8%, in the third quarter,” Short said.
S&P Capital IQ’s research shows that Wall Street analysts are projecting a 1% earnings decline compared to a year ago, with estimates the lowest they’ve been since the Great Recession of 2009. Revenue growth expectations stand at only 1%, their lowest since Q4 2009, and well below the 10-year average of 7%.
“The only way for companies to succeed is growing that top line,” Short said, noting that such low growth suggests the U.S. economy may be headed for another recession. “One percent revenue growth is just not sustainable.”
Dozens more companies will lend more clarity to the economic picture when they report earnings this week, but for now five of 10 sectors are expected to post negative growth. The weakest performance will likely come from the Energy and Materials sectors, which rely on high-priced commodities and have suffered from China’s manufacturing slowdown.
Among financial companies, the insurance group is expected to see 31% overall earnings, with The Hartford (HIG) anticipated to be an especially big winner in the quarter. Commercial banks are expected to earn 24%, with some of the greatest growth from SunTrust and Regions.
The big banks on Friday met expectations, with both JPMorgan (JPM) and Wells Fargo (WFC) announcing double-digit profits of 34% and 22%, respectively. Even Citigroup (C), which reported a $4.7 billion loss due to the sale of its stake in Morgan Stanley Smith Barney, on Monday beat analysts’ expectations of earnings per share of $0.96. The bank posted EPS of $1.06 on earnings of $3.27 billion versus $2.57 billion a year ago.
In early afternoon trading on Monday, the U.S. stock markets were up across the board. The Dow Jones industrial average was up 80 points, or 0.60%, at 13,409. The S&P 500 was up 8.44 points, or 0.59%, at 1,437. The Nasdaq index was up 9.72 points, or 0.32%, at 3,054.
Read JPMorgan, Wells See Big Q3 Profits as Bank Lending Returns at AdvisorOne.