It's like waiting for the other shoe to drop.
Standard and Poor's (S&P) announced yesterday that 2Q07 operating earnings for the S&P 500 exceeded expectations, rising 9.9% from the prior-year period according to preliminary data. Operating and reported earnings of $214.2 billion and $194.6 billion, respectively, broke records set in 3Q06 of $207.2 billion and $193.2 billion. The results are strangely at odds with the current state of the market, but reflect the halcyon days of the second quarter, before the subprime mortgage crisis took the bloom off of the economic rose.
Operating earnings per share were $24.12 versus $21.95 in 2Q06. Year-over-year estimates for the third quarter are lower, with operating earnings up just 2.08% and as-reported earnings up 1.07%. If the estimates are accurate, those will be the lowest earnings levels from the past three years. However, operating earnings are expected to rise again in the fourth quarter to $24.36 per share, a 10.78% year-over-year increase.
S&P Senior Index Analyst Howard Silverblatt says Financials, which represent 20% of the index, contributed 28% of the earnings. Operating earnings for Financials were up 14.04% over the prior year. Meanwhile, Information Technology, at one time expected to see a 20% increase in earnings over the prior year, increased just 5.1%. The largest jump was in Healthcare, which saw operating earnings increase 21.52% over the prior year. Utilities and Consumer Discretionary were the only two sectors that saw year-over-year declines. They were down 2.11% and 1.78%, respectively.
Silverblatt warned that although the second quarter showed good performance, the climate changed after July 19 due to liquidity concerns and the housing slowdown.