This past week, the Federal Reserve Board increased the target funds rate. This marked the first increase in this rate since 2006. Earnings for companies in the Financials sector are particularly sensitive to higher interest rates. Given this increase in the target rate and the potential for future rate increases in 2016, what is the outlook for earnings for banks and other sub-industries in S&P 500 Financials sector for 2016? Did analysts revise their 2016 earnings estimates for companies in this sector after the Fed announcement?
In terms of year-over-year earnings growth, all 19 sub-industries in the S&P 500 Financials sector are predicted to report growth in earnings for the fourth quarter, led by the Investment Banking & Brokerage (24.7%), Multi-Sector Holdings (18.0%), Multi-line Insurance (14.7%), and Real Estate Services (14.4%) sub-industries. On the other hand, the Property & Casualty Insurance sub-industry (0.5%) is projected to report the lowest earnings growth of all 19 sub-industries in the sector.
In terms of estimate revisions, analysts did not made significant changes to EPS estimates for companies in the Financials sector after the rate hike announcement. In terms of upward revisions to earnings growth estimates, five sub-industries recorded an increase in expected earnings (or FFO) growth over the past week, led by the Investment Banking & Brokerage (to 24.7% from 24.3%) and the Hotel & Resort REITs (to 10.1% from 9.9%) sub-industries. In terms of downward revisions to earnings estimates, six sub-industries recorded a decrease in expected earnings (or FFO) growth over the past week, led by the Industrial REITS (to 10.5% from 10.7%) sub-industry.
In terms of the reaction of the market, the value of S&P 500 Financials sector is up 2.6% since last Friday, which is the third highest price increase of all 10 sectors over this period.