Q4 Earnings Really Weren't Too Bad -- Except For Banking

Corporate profits can be boom or bust. Right now they're both.

With 58% of the S&P 500 reporting results as of Monday morning, fourth-quarter earnings are on track to dive 20.7% from a year earlier, according to Thomson Financial. It would be the worst showing since the fourth quarter of 2001.

But that's mainly due to massive write-downs and other losses by banks. When all results are in, the sector will likely show a net loss.

"It's awful when you aggregate everything. But strip out financials, it's phenomenal," said David Dropsey, senior research analyst at Thomson Financial.

S&P 500 earnings excluding financials look set for an 11% gain.

In the third quarter, overall profits fell 4.5%. But excluding financials, they rose 3%.

The tech sector helped pull up fourth-quarter results. S&P 500 tech firms will likely end up with 26% profit growth, the best in more than three years.

Energy firms and medicals are also on track for solid double-digit gains. Yet stocks are doing terrible. The tech-heavy Nasdaq is down 10.2% so far this year.

Many economists expect a recession this year, even with the Federal Reserve slashing rates.

High-profile warnings haven't helped. Amazon (NasdaqGS:AMZN - News) and Yahoo (NasdaqGS:YHOO - News) have both guided 2008 forecasts lower. Apple (NasdaqGS:AAPL - News) once again gave a conservative outlook, perhaps too cautious for jittery investors.

Even so, warnings on the whole have been mild. The negative-to-positive ratio for first-quarter tech pre-announcements is 1.7 so far -- below the 2.0 average. Overall warnings also aren't alarming.

But strong results have "not translated into upward earnings revisions," said Dirk van Dijk, director of research at Zacks Investment Research. "I view that as an ominous sign, a resounding vote of no confidence from analysts."

Broader economic concerns are playing a role, van Dijk says.

The U.S. barely grew in the fourth quarter and shed jobs for the first time since 2003 last month.

Nearly half of S&P 500 firms' sales come from overseas, so many companies have been able to offset sluggish domestic results so far.

"It's a battle between how bad the U.S. economy is going to be and how strong the world economy will be," Dropsey said.

Looking forward, S&P 500 profits are expected to show tepid gains in the first half of 2008, followed by huge gains in the second half on hopes for a recovery among financials. Techs should enjoy double-digit growth all year.