Although earnings trends have wobbled since last autumn, reported profits are now gaining in key industries. This, naturally, is an encouraging trend for the stock market’s hesitant rally.

Even though there are 77 individual industries within the S&P/TSX composite index, 10 to 15 set its tone — and pace. Most of these selected industries make up the significant parts of the energy, materials and financial sectors.

The Canadian market is top-heavy in these three sectors, which represent 76% of market capitalization. Sure, there are a few other industries with big earnings, but they lie outside the dominant resources and financial sectors.

In looking at the broad picture of earnings reported by corporate Canada, you can see a few sharp sector drops. And these drops obscure rises in industries — or indications of a possible turnaround — within sectors. Most sectors have been reporting modest earnings gains over the past six months.

In a handful of industries — mainly small sectors occupied by a few companies — recent earnings changes have been volatile. Examples include health care and information technology.

The trend-setters are the 11 industries — or “subindustries,” in S&P/TSX composite index jargon — and industry groups in the resources and financial sectors that have the largest earnings. With one exception, all have earnings of $1 billion or more in the 12 months ended April 30. The accompanying table (above, right) gives the details. Four other industries in the index — integrated telephone services, railways, publishing and airlines — exceed $1 billion in earnings.

As the table shows, earnings for banks and real estate enterprises have rallied. Insurance industry earnings continue to rise, and the rate of decline has slowed in the diversified financial group.

Although insurance stock prices are down, their subindex drop has been slight compared with the devastation in the other three important financial industries. Meanwhile, the real estate subindex has been dropping for a year. Its 12-month loss is 22%. The diversified financial subindex is down 21% in the same period; banks are down 15%.

The big earnings drop by diversified metals and mining (industrial metals) has coloured the entire materials sector. In contrast, the growth of fertilizer and agricultural chemicals earnings is accelerating. One company, Potash Corp., stands out.

In the third major materials group, gold mining, earnings are trending sideways as the industry fights higher costs, which have taken the shine off gold’s big price rise.

In price action, the gold industry subindex has risen 22% in the past 12 months; the red-hot fertilizers and agricultural chemicals subindex has gained 67%. As for diversified metals and mining? It’s down 13%, but the subindex has gained since January.

A significant cause of the drop in industrial metals earnings is the takeout of major companies Inco Ltd., Falconbridge Ltd. and Alcan Inc., which were all bought out by foreign firms, as well as several intermediates. This pretty much leaves Teck Cominco Ltd. standing alone as the industry giant.

Energy-sector earnings started to revive last year, led by the two most significant industries: exploration and production, and integrated oil and gas. These two industries have been followed by a modest revival in earnings from storage and transportation companies — pipelines, to say it in one word.

Earnings revival has been mirrored by the rise of the exploration and production and the integrated oil and gas industries’ price subindices to new highs.

Drilling, one of the smaller industries in the sector, has suffered a huge drop in earnings. Industry stock prices have been rising since November, though, indicating that investors expect an earnings revival.

The coal and consumable fuels industry in the energy sector has set up a big contradiction — and, perhaps, a large opportunity. The industry subindex has dropped sharply since last spring. In the meantime, though, earnings have revived. They have gained 90% in the past 12 months, jumping 77% in April alone.

Of the remaining seven non-resources and non-financial sectors of the market, a few have reported jumps in earnings. But these sectors are so small that results tend to be volatile. Gains from single stocks — such as Research in Motion Ltd. in the information-technology sector, to take the prime example — make a huge difference.

Earnings gains have accelerated in telecommunications services, and all major players have participated.

Utilities and consumer staples earnings have also picked up. IE