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We calculated expected 2009 operating EPS numbers for each of the nine sectors of the S&P 500 based on market capital weighted averages of the earnings expectations of the companies included in each sector. In doing so, we compared the expected “normalized” 2009 operating EPS numbers with the “normalized” 2008 operating EPS results. We are using the term normalized, but it should be taken with a grain a salt, given the unique circumstances we face today. I would note that only 451 companies are included in the analysis. Of the nine sectors in the S&P 500, four are projected to post positive EPS growth in 2009 – Consumer Staples (+12.1%), Healthcare (+4.5%), Utilities (+2.2%) and Financials (+15.9%).

Two of the four sectors showing positive growth don’t seem too out of line, but the XLP (Consumer Staples) seems to be aggressive at 12% growth. And, the expected 18.2% operating EPS growth for the XLF (Financials) seems completely out of line.

A closer look at the number shows that it is being driven by three companies – Wells Fargo (projected 73% 2009 EPS growth translates into a market weighted 6.5% contribution to the XLF’s overall growth), Goldman Sachs (6.1% growth contribution based on 91% expected EPS growth) and JP Morgan Chase (12.7% growth contribution based on 97% expected EPS growth). It is important to note that these sector EPS growth rates are based on street estimates, and therefore, are only as good as the estimates. That being said, with the S&P 500 -55% below the all time high set in October 2007, an earnings recovery story in three of the nation’s leading financial institutions does not seem plausible.

Howard Penney