U.S. financial companies, fueled by the fastest earnings growth in the Standard & Poor’s 500 Index, are poised to reclaim their position as the market’s biggest industry for the first time since the credit crisis.
Banks, brokers and insurance companies make up 16.8 percent of the S&P 500, almost double the level from 2009 and closing in on technology companies at 17.6 percent, according to data compiled by Bloomberg. Bank of America Corp. and Morgan Stanley are helping lead gains in the index this month after profits topped analyst estimates. Intel Corp. and Microsoft Corp. are among the worst after earnings trailed forecasts.
For bulls, the change signals banks will lead the economy even after the Federal Reserve begins to reduce stimulus. Bears say S&P 500 profits would be down this quarter if not for banks. They note that the last time financials were the biggest industry was in 2008 and the consequences were disastrous.
“The fact that we are seeing banks perform reasonably well provides a certain sense of confidence in the underlying economy,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion, said in a July 25 phone interview. “Without the financials working, it would be hard to imagine that all the rest would be working at all.”
Equities snapped a four-week rally as earnings from Netflix Inc. to Caterpillar Inc. trailed forecasts and Chinese manufacturing contracted more than estimated. The S&P 500 fell less than 0.1 percent to 1,691.65, after hitting a record 1,695.53 on July 22. The benchmark gauge for U.S. stocks is up 19 percent for the year, bringing the advance since the market bottomed in March 2009 to 150 percent.
The S&P 500 slipped 0.2 percent to 1,687.76 at 10:09 a.m. New York time today.
Earnings for companies in the S&P 500 are projected to climb 3.3 percent, led by a 27 percent increase in bank profits, based on more than 11,000 analyst projections compiled by Bloomberg. Without the financial industry, S&P 500 income would contract 1.2 percent.
Bank of America, Morgan Stanley and E*Trade Financial Corp. rose at least 13 percent and helped lead financial shares higher this month. Broadcom Corp., down 19 percent in July, and Microsoft, which has lost 8.5 percent, are dragging technology shares to the second-worst industry performance. Computer makers and software designers have reported earnings 0.4 percent below analysts’ estimates on average, data compiled by Bloomberg show.