DataTrek’s Nicholas Colas emphasizes that the financial sector of S&P 500 is “much more than just banks,” as investors await JPMorgan’s third-quarter results expected on Friday.
Last week, all three major U.S. stock indexes posted gains for the fourth consecutive week, boosted by a stronger-than-expected jobs report. The financial sector of the S&P 500 saw a modest 1% rise, while energy stocks surged 7% amid concerns over risks to oil supplies due to the conflict in the Middle East.
As corporate earnings season kicks off, investors are closely watching JPMorgan Chase and Wells Fargo, which are set to report third-quarter results on October 11. According to a DataTrek Research note, financial sector earnings aren’t expected to be particularly strong this quarter, with analysts predicting a 0.4% decline from last year due to a 12% year-over-year drop in bank earnings.
However, Colas reminds investors that the financial sector encompasses more than just banks. In fact, non-bank subsectors make up 76% of the financial group, with areas such as financial services, capital markets, insurance, and consumer finance playing a larger role in the sector’s performance. Colas’ note breaks down the subsector weights as follows:
- Financial services: 32%
- Banks: 24%
- Capital markets: 23%
- Insurance: 17%
- Consumer finance: 4%
DataTrek views large-cap financial stocks as a diversified way to benefit from continued U.S. economic growth. Colas notes that while early bank earnings offer insight, they represent only a small portion of the financial sector’s overall story, with other subsectors expected to show year-over-year earnings growth.
As of this year, the U.S. stock market has surged, with the S&P 500 up 19.4% through Monday and its financial sector slightly outperforming at 19.8%. However, the S&P 500 financial sector is down 0.5% for the month, while energy has jumped 6.5%, reflecting market reactions to escalating tensions in the Middle East. On Monday, U.S. markets closed lower across the board, with energy being the only sector in the S&P 500 to end the session in positive territory.
