Third-quarter earnings growth is lagging due to JPMorgan Chase, but otherwise corporate results have been solid, with tech nology and industrials among the sectors delivering solid gains.
With nearly half of the S&P 500 already reporting, Q3 earnings are on track to rise 3.3% vs. a year earlier. That would be the third straight quarter of decelerating growth and below the 4.5% expected on Oct. 1.
But that mostly reflects JPMorgan's (JPM) unexpected loss due to a huge charge for ongoing litigation woes.
Excluding JPMorgan, the blended S&P 500 estimate is for 5.9% growth.
Of the 228 S&P 500 companies that have reported Q3 earnings, 68% have topped analysts' expectations, while 20% have fallen short, according to Thomson Reuters. That's slightly better than normal.
Revenues are expected to rise 2.2%, the same as in Q2. About 54% of companies so far have topped sales targets vs. 49% over the past four quarters.
Sales have been a challenge for corporations amid sluggish U.S. and global economic growth.
"A lot of the earnings growth over the last year has been to cost cutting and not top-line growth," said Gregory Harrison, a Thomson Reuters analyst. "Companies are reorganizing, doing whatever they can to keep the earnings numbers up.
No IT Woes Here
The tech sector has been an earnings standout so far, thanks to robust results from Google (GOOG), Microsoft (MSFT) and others. As of Friday, 84% of S&P 500 technology components have topped analyst estimates. Two-thirds of S&P 500 tech firms have beaten revenue forecasts.
S&P 500 tech earnings are on track to rise 6.3%, with revenue up 3.9%.
Several big techs are still on deck, including Apple (AAPL), which should report a 9% earnings per share drop Monday. Facebook (FB) and LinkedIn (LNKD) are expected to deliver large profit gains this coming week — but neither social network is on the S&P 500.
Industrials have had a strong showing, with 69% beating earnings estimates so far, including giants such as General Electric (GE), Boeing (BA) and 3M (MMM). Caterpillar (CAT) reported a bigger-than-expected earnings drop and cut its outlook, as the construction equipment giant cited weak mining gear demand. But S&P 500 industrial earnings should show a 7.3% yearly gain.
The consumer discretionary sector leads with an expected 9.2% increase. Ford (F) delivered strong earnings, with General Motors (GM) on tap this week.
The financials sector is a drag on overall S&P 500 earnings, with a mere 0.2% gain expected. That's a big change from the 9.1% increase seen on Oct. 1. In recent years, banks had boosted their earnings by releasing billions of dollars from funds they set aside to cover losses.
That has masked prior underlying weakness in the rest of corporate America. In Q2, S&P 500 earnings rose 4.9% — but dipped 0.2% excluding financials.
However, on Oct. 11 JPMorgan reported its first-ever loss under CEO Jamie Dimon. The nation's largest bank disclosed it has stashed $23 billion in its legal reserves to deal with its ongoing litigation and regulatory battles.
JPMorgan late Friday agreed to pay $5.1 billion to settle mortgage securities claims with Freddie Mac, Fannie Mae and the Federal Housing Finance Agency. A reported $13 billion settlement with the Justice Department has yet to be announced.
Excluding JPMorgan, financials are expected to end up with a 15.8% profit gain.
But big banks such as Bank of America (BAC) and Wells Fargo (WFC) continue to face legal fallout from the financial crisis.
S&P 500 energy earnings are expected to drop 7.9%, the only sector to suffer a decline. Exxon Mobil (XOM) and other Big Oil giants report this week.
Looking ahead, analysts still see robust Q4 earnings growth — 9.5% as of Friday. Sales are expected to climb just 0.7%. That wide disparity suggests that profit forecasts will be coming down rapidly as the year winds down.