S&P 500 Financials

Financials now account for only 13.5% of the market capitalization of the S&P 500, down from a recent peak of 16.9% during April 2010 and a record high of 22.2% during January 2007. In other words, the sector has less weight in the S&P 500 than in the past to drag down the overall index. Besides, banks aren’t as important to the economy now as in the past, when they provided much more credit to the economy. They certainly have cut back on their mortgage lending. Their commercial and industrial loans are expanding, but at a slow pace driven by the cautious rebuilding of inventories by businesses. Most importantly, the capital markets have displaced a lot of bank lending.

Financials accounted for 25%-30% of the S&P 500 earnings during their heydays of the previous decade before they imploded in 2008. That share plunged to a low of 11.5% during February 2009. It then rebounded to 17.6% during December 2010, and was back down to 16.2% during October, and probably going lower.

With one exception, analysts have been reducing their 2012 forecasts for the major banking industries in the S&P 500 Financials sector all this year. For the overall sector, their 2012 estimate has been cut by 14.8% ytd through the first week of November. This decline has been led by a 33.2% plunge in the consensus estimate for Investment Banking & Brokerage (ETFC, GS, MS, SCHW). Other Diversified Financial Services (BAC, C, JPM) and Diversified Banks (CMA, USB, WFC) have seen estimates cut by 26.2% and 8.0% so far this year. Regional Banks have been lowered by 5.6%. The exception is Consumer Finance (estimates up 16.0%).