Why the sudden drop in profit growth? Rising interest rates, slowing productivity gains, and high commodity prices were widely expected to bite into earnings. But steadily rising crude oil prices combined with a cooling economic recovery have conspired to hit profits harder than expected. Says Sung Won Sohn, chief economist at Wells Fargo & Co. (WFC
): "The higher price of oil is not only hurting consumer spending, it's also hurting company profits." Just ask the airlines, which continued to lose altitude. Delta Air Lines (DAL
) lost $646 million, while American Airlines (AMR
) parent AMR booked $214 million in red ink.
Of course, some sectors still defied gravity. Big Oil, with its ample pricing power, promises to be one of the biggest profit machines this quarter. ConocoPhillips (COP
), for example, reported a 60% jump in earnings, to $2 billion.
Analysts polled by Thomson First Call expect profits for S&P 500 companies to rise 15.3% in the fourth quarter. Not torrid, but solidly in the black. By Stephanie Anderson Forest in Dallas