The Finance sector has been missing in action lately, both in terms of stock price as well as earnings performance. A discussion of the sector’s recent price performance will provide a good context for the earnings question, which we plan to discuss at some length a little later in this write-up.
Finance sector stocks have held up somewhat better relative to the harder-hit sectors like Energy and Industrials, but they have lagged the broader market as a whole. Over the last four weeks, Finance sector stocks in the S&P 500 have declined -3% versus the flat finish (actually down -0.3%) for the index as a whole in that time period. The sector’s price under-performance has been less pronounced in the year-to-date and last one-year periods, but it has nevertheless lagged the broader market.
Finance isn’t one monolithic group of companies; the constituent industries in the sector range from large money center banks to regional S&Ls, insurers, brokers and specialty finance operators like credit card issuers. The real estate investment trusts (REITs) also get grouped in the Finance sector. Not all industries have performed the same.
Except for REITs, all Finance industries came short of the S&P 500 in the year-to-date trailing 52-weeks periods, though the performance of insurers and regional S&Ls has been notably weak. Over the past one- and 3-month periods, REITs have been the weakest in the sector while the major banks have held up better than others.
Earnings Expectations
The Finance sector is the biggest earnings contributor to the S&P 500 index, expected to bring in 18.5% of this year’s estimated earnings for the Index as whole. Expectations for the sector remain low, with total earnings in the quarter expected to be down -3.9% from the same period last year. This follows the +0.9% earnings growth in the preceding quarter and -7.3% decline in the first quarter of 2014.
Digging a bit deeper, earnings are expected to be down in the two largest industries in the sector: Major Banks (down -21.6%) and Insurance (down -2.8%). The big decline for the Major Banks primarily reflects the big settlement at Bank of America (BAC – Analyst Report), which results in a roughly $4 billion negative swing in the bank’s earnings from the same period last year. Excluding the Bank of America estimates from what is expected for the Major Banks industry, the decline rate improves to -3.7%.
