The Return Of High-Finance: Big Banks Surpass Earnings Expectations

James Dennin, Kapitall: Financial companies appear poised to replace technology companies as the most profitable beat on the S&P 500. Half-way through earnings season, banks and brokers made up 16.8% of the index, rapidly approaching technology's share at 17.6%. Finance has not topped the S&P since the credit crisis in 2008.

​[Read more from James Dennin: Tech Round-up: Google, Apple, and Facebook]

Banks led every other sector by increasing profits 27%. Without them, many analysts suspect that S&P income would have begun to shrink. All six of the biggest US banks increased first-half revenue as they surpassed earnings expectations. Spokespeople from the industry point to increased confidence and a greater appetite for risk among investors as the economy has begun to improve. 

Profit from consumer and business banking rose 15% as expenses went down, and per-share earnings are expected to double this year, according to Bloomberg. 

This switch is also fueled by a disappointing season for technology companies, as earnings are expected to contract about 5% in the second quarter. Bears in the tech sector are pointing to falling revenues as a sign that companies are struggling to adapt to the never ending shifts in the industry, and are increasingly boosting profits by cutting costs as opposed to raising sales

Many investors are beginning to think that the optimism surrounding tech stocks has swelled into a bubble – with the Nasdaq trading at its highest level since late 2000 and internet and smartphone revenues beginning to fall. If they are right, then now would be an excellent time to start re-investing in financial companies whose long-term growth prospects are more assured. 

For an interactive version of this chart, click on the image below.

Dig Deeper: Compare analyst ratings to annual returns for stocks mentioned

 

The List

1. BlackRock, Inc. ( BLK): Provides its services to institutional, intermediary, and individual investors. Market cap at $48.87B, most recent closing price at $286.38.

 

2. JPMorgan Chase & Co. ( JPM): Provides various financial services worldwide. Market cap at $212.B, most recent closing price at $56.05.

 

3. Citigroup, Inc. ( C): Provides consumers, corporations, governments, and institutions with a range of financial products and services. Market cap at $158.75B, most recent closing price at $52.21.

 

4. Bank of America Corporation ( BAC): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. Market cap at $158.73B, most recent closing price at $14.73.

 

5. Morgan Stanley ( MS): Provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. Market cap at $52.85B, most recent closing price at $27.70.
 

 

( List compiled by James Dennin. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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