Thus far, roughly 20% of the companies in the S&P 500 have reported, and overall first-quarter earnings are down 22.1%, according to Brown Brothers Harriman. But excluding financials, earnings are up by 8.2%. If the actual reported earnings are combined with estimates for the remaining companies, earnings are coming in slightly above expectations, at a 12.9% decline. Excluding financials, they're up a healthy 9.5% Brown Brothers says.
Why is this wrong?
-- The financial sector is the largest part of the S&P 500, comprising 17.64% of the index.
-- The financial sector provides the lubricant (read money in the form of credit) for the whole economy. If it isn't functioning well we have a big problem overall.
-- This is part and parcel of the "if we don't talk about it, it's not really a problem" mentality that has infested American political discourse for the last 20 years.
Here's the deal. If we were talking about a really small sector of the economy, say the Yak breeding business -- I wouldn't really care about their earnings picture. But we're talking about the largest component of the S&P 500 and the part of the economy that helps the other parts of the economy grow. Dismissing earnings misses, asset writedowns and the overall problems created by the credit crunch minimizes the actual impact of the problem. And that will eventually get us into a world of trouble.