Analyst David Rosenberg talks about the obvious this morning: corporate profits.
If you take a look at Q409 or Q110 earnings from a lot of big companies, you’ll almost surely notice a sea change as losses from 2009 have turned into healthy profits. Rosenberg notes that 85% of the overall increase in corporate earnings can be attributed to the financials sector.
Breakfast With Dave: Total U.S. corporate profits (national accounts basis) rose 30.6% YoY in Q4, a huge swing from the -25.1% trend a year ago. Almost the entire story is in the Financial sector where profits have soared 240%, which is unprecedented. With the banks shrinking their asset base, the surge in earnings has been due to the ability to ‘extend and pretend’ post the FASB 157 changes a year ago and the ability to play a super steep yield curve.
Financial sector profits have accounted for 85% of the overall increase in corporate earnings. Total nonfinancial earnings are up the grand total of 5.2% on a YoY basis, though this is still much better than the -17.9% pace a year ago.
The financial share of total profits bottomed at 10.8% in 2008 Q4 and has since soared to 28.2%, one of the highest shares ever (and never higher before the credit bubble of the last cycle). This does not look sustainable to me.
Not surprisingly, many of these names ar ekilling it this year.
Let’s take a look at the obvious: YTD % gains of financial stocks:
- Financial Select Sector SPDR ETF (XLF): +15.31% YTD
- American International Group (AIG): +34.56% YTD
- Bank of America (BAC): +24.03% YTD
- Wells Fargo (WFC): +20.12%
- Citigroup (C): +38.36%
- CIT Group (CIT): +43.60%
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