FORTUNE – U.S. stocks rose Tuesday as earnings started on a positive note with Alcoa (AA) beating Wall Street expectations. Though some still consider the industrial giant a bellwether for earnings across corporate America, it’s unlikely to say much about how other companies will have fared during the three months ending in June.
Analysts expect to see a marked slowdown in earnings and revenue growth across companies listed on the Standard & Poor’s 500 index. It’s not all gloomy, however. For the second quarter in a row, Wall Street banks and the financial sector overall are poised to be the season’s bright spot, reporting the highest earnings and revenues growth of all 10 sectors included in the S&P 500 (SPX). Without Wall Street, investors would expect a far weaker earnings season.
Overall, earnings across the S&P are expected to grow less than 1%, according to FactSet. If that happens, it would mark the third-lowest growth rate in four years. It would also put the brakes on the recovery investors have enjoyed during the past few quarters, after 11 straight quarters of earnings growth finally halted during the third quarter of 2012.
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Despite lackluster growth, the financial industry is expected to be the biggest contributor of earnings growth across the S&P 500. Profits within the sector are forecast to grow by 16.8% from a year earlier, according to FacSet. Without that, the earnings growth rate for the index would fall to negative territory, declining by 2.5%.
For the most part, banks had been benefitting from the boom in refinancing as mortgage rates fell to record lows. Demand, however, has softened considerably as interest rates steadily rise but that’s unlikely to impact the bottom line at some banks, at least for now.
On Friday, JPMorgan Chase and Wells Fargo will kick off bank earnings season.
If Wall Street consensus proves right, JPMorgan Chase (JPM), the nation’s largest bank, will report earnings per share of $1.43, higher than $1.21 per share a year earlier. Wells Fargo (WFC), the nation’s largest home lender, is forecast to report earnings per share of $1.43, higher than $0.82 a year earlier.
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If that happens, the San Francisco-based bank would see its 14th consecutive rise in quarterly earnings and the ninth consecutive record. To be sure, revenues from mortgages could be under pressure. As Barclays analysts noted in a July 9 report to clients, Wells executives recently said that a 30-year mortgage rate of 3.5% would be a line in the sand where consumers either refinance or refrain from doing so. With that rate now at 4.29%, Barclays expects the number of refinancings to drop further. That could be offset by the bank’s efforts to curb expenses, at least for now, but it remains to be seen how the bank will fare the rest of the year.
More than that, big profits may not be enough to keep investors happy, as new capital requirements and regulations could weigh heavily on banks’ return on equity down the road.