Bank profit leading S&P 500 as U.S. earnings growth sputters

Profit Estimates

Investors bought shares this year as analysts said profits in the S&P 500 Financials Index will total $154.7 billion in 2012, including $37 billion in the third quarter, according to data compiled by Bloomberg. While that’s down from $222.8 billion in 2007, it’s an increase of 8 percent over last year, Bloomberg data show. More than 30 companies in the 81-stock gauge have been taken out or added into the index in the last five years as their prices plunged and banks merged.

Financial companies make up about 13 percent of S&P 500 earnings. Without them, the projected decline in third-quarter income for the full index would widen to 5.3 percent from 1.7 percent, according to more than 11,000 analyst forecasts compiled by Bloomberg.

Credit from U.S. banks, critical for the economy’s growth, totaled 233 percent of U.S. gross domestic product last year, according to data from the World Bank. Half of likely voters say the economy is the most important issue in the election, according to a survey by Quinnipiac University in Hamden, Connecticut, released last week.

Jobless Rate

Employers added 114,000 workers last month after a revised 142,000 gain in August that was more than initially estimated, Labor Department figures showed Oct. 5 in Washington. The jobless rate dropped to 7.8 percent, the lowest level since President Barack Obama took office in January 2009.

Banks are benefiting as Fed Chairman Ben S. Bernanke buys mortgage bonds to stimulate lending and the economy. The gap between interest charged for residential mortgages and the rates banks pay on securities that package the loans has widened to a record, data compiled by Bloomberg and Bankrate.com show, making home lending more profitable. The increase came as new home sales reached a two year high, even though they remain at less than half their 2005 record.

Shares of banks that focus on real-estate and business lending are climbing the most. The housing rebound and speculation that regulations such as the Dodd-Frank Act will curb earnings at securities firms meant a gauge limited to lenders beat the S&P 500 Financials Index by 5.8 percentage points in 2012.

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