S&P 500 Earnings Exceed Expectations

When all is said and done, we expect the S&P 500 to post about 38% for the first quarter vs. consensus estimates of a 27% increase.
Publish date:

By Bill Stone of PNC Wealth Management



) -- As of May 6, nearly 85% of the S&P 500 companies in terms of market capitalization, or 391 companies out of 500, have reported first-quarter earnings results. Operating earnings are up significantly from first-quarter 2009 levels.

S&P 500 headline earnings and earnings ex-Financials are almost 60% and 44%,respectively, above the levels of one year ago. In addition, a full 78% of companies reporting thus far have exceeded the consensus estimates, which is far in excess of the 56.5% long-term average.

When earnings estimates for the companies yet to report are combined, the blended growth rate for the index is expected to be up nearly 56% compared to the first quarter of 2009. The blended growth rate ex-Financials is expected to be up 39%. In contrast to less than a year ago, when we listed the minority of sectors expecting to post positive growth, only the Telecommunications sector (-1%) is expected to post a negative growth rate. Financials (303%), Materials (215%), Consumer Discretionary (153%) and Technology (66%) sectors are expected to post the highest increases from last year's levels.

The large rebound in the Financial companies' earnings is largely a function of easy comparisons rather than strong growth, given that the sector reported relatively meager earnings at this time last year. For example, on the current pace, Financial companies' earnings for the quarter will amount to less than half the level at their earnings peak in 2007.

When all is said and done, we expect the S&P 500 (ex-Financials) to post a year-over-year increase of approximately 38% for the first quarter vs. consensus estimates of a 27% increase going into the reporting season.

Bill Stone is the Chief Investment Strategist for PNC Wealth Management and PNC Institutional Investments with over $100 billion in assets under management. He is a member of PNC's Investment Policy Committee and is responsible for defining the asset allocations and portfolio strategies used throughout the organization to advise individual and institutional investors. Stone is a cum laude and honor's program graduate of the University of Dayton with a bachelor's degree in finance. He earned a master's of business administration from the Katz Graduate School of Business at the University of Pittsburgh. In addition, he holds the Chartered Financial Analyst� designation and is a Chartered Market Technician. Stone has been quoted in many publications including The Wall Street Journal, Financial Times, Barron's, Fortune, Forbes and USA Today. He is regularly interviewed by Associated Press and Reuters. He is also regularly interviewed on CNBC and Fox Business for his market insights.