Fourth quarter earnings for the S&P 500 Index companies are mostly in the books now. A total of 98% of companies have reported as of February 29th, and the results were downright dismal.

The really interesting part of this story however is the quick rebound Wall Street analysts are projecting for this year. They’re talking as if banks aren’t still writing-off billions in losses. While the financial sector led the hit-parade last quarter, the broad economy is being impacted by a slowdown now. It isn’t just the financial sector.

To be sure, financial sector results are at the bleeding-edge of reported losses. In fact, banks and brokers in the S&P 500 financial sector saw profits disappear in the fourth quarter with a 122% year over year plunge in earnings! The financial sector reported losses of US$2.10 per share – a big drop from profits of US$9.48 per share posted in the final period of 2006. That’s quite a negative reversal of fortune!

Financial stocks account for nearly 20% of the S&P 500 by market-cap. In fact, it’s the largest sector in the index by far. So the gushing red ink in this sector was enough to drag overall S&P profits down to MINUS 20% in the fourth quarter. Ouch!

Financials, however, weren’t alone posting poor results at the end of 2007. Companies in the S&P Consumer Discretionary sector (construction, auto, retail) saw profits drop 10.5% last quarter. Also, the S&P Basic Materials sector suffered a 12.2% profit decline.

Still, all other sectors of the S&P 500 Index, except for Utility shares, posted double-digit profit growth in the fourth quarter.

Information Technology shares led the way, posting stellar earnings growth of 29.6% in the last three months of 2008. Energy and healthcare weren’t too far behind – with profit growth of 24.5% and 22.7% respectively.

This shows the dichotomy of the bruising bear-market we’re in. The sub-prime market shock that began last summer has been centered on housing and finance from the very beginning.

Meanwhile, most other parts of the economy seem to be functioning pretty well – at least for now. The real question is: How much of a spillover effect will the weakest sectors have on the rest in 2008? First-quarter profit reports begin hitting the fan in less than 30 days. Stay tuned!