Strategy

Financial Firms Drag Down S&P 500

Other companies averaged 8.8 percent operating earnings growth in the first quarter.
Stephen TaubMay 16, 2008

Call it a tale of two markets: first-quarter 2008 operating earnings for the S&P 500 declined 25.9 percent from a year earlier — but excluding financial companies, the group actually enjoyed a healthy gain, according to preliminary figures from Standard & Poor’s.

It was the third consecutive quarter the index has reported declining earnings, which hadn’t happened since the fourth quarter of 2001. Reported earnings also declined, by 27.1 percent.

The 409 nonfinancials in the group registered an 8.8 percent weighted gain in first-quarter operating earnings. That was not enough to overcome a 108 percent year-over-year decline for the financial firms. Among the 10 broad sectors, the only other to report a decline was consumer discretionary companies, which was off 21 percent. The results are based on 95 percent of the data having been reported.

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Similar results were seen during the fourth quarter of 2007, when the index recorded a 30.8 percent decline. Excluding financials, which dropped 143 percent, the index showed a weighted earnings gain of 12.2 percent.

“While the negative news surrounding financials received all of the headlines during the first quarter, 53 percent of the nonfinancial issues within the S&P 500 recorded double-digit earnings gains,” says Howard Silverblatt, senior index analyst at Standard & Poor’s.

Silverblatt warns that the second quarter may not look too impressive either, when compared with last year. The second quarter of 2007 marked the highest level of earnings in the index’s history.