Connecticut Post

For first time since COVID, profits rising

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The freefall for corporate profits because of the pandemic is over, at least for now.

The last few companies are letting their investors know how much profit they made during the last three months of 2020, and if the trend holds, they’ll likely blow past expectatio­ns. Earnings for the big companies in the S&P 500 index are on track to be nearly 4 percent higher than a year earlier.

That may sound like only lukewarm growth, but it was much better than the nearly 10 percent drop that analysts expected at the start of the reporting season. It’s also the first quarter of growth for the S&P 500 in a year, since the pandemic leveled economies around the world.

Nearly four out of five companies have reported stronger earnings for the last three months of 2020 than analysts expected, according to FactSet. By that measure, it’s one of the most surprising­ly strong quarters for earnings reports since FactSet began tracking the figures in 2008.

Such a performanc­e was sorely needed. Stock prices have soared across Wall Street since March, even though COVID-19 restrictio­ns and frightened customers were hammering profits. S&P 500 earnings plunged nearly 32 percent in the spring of 2020, after the stock market had already made its turn higher, for example.

If profits can keep rising, it would help to justify the lofty prices stocks have reached and cool down the warnings of a dangerous bubble that have been growing louder.

One encouragin­g sign is that most companies reported stronger revenue for the end of 2020 than analysts expected. Wall Street is forecastin­g revenue to soar even higher as the year progresses and more people get COVID-19 vaccinatio­ns.

But another challenge is looming, outside of the pandemic. Worries about higher inflation have rattled markets recently, particular­ly in how it could affect corporate profits and the value that investors ascribe to stocks.

Beyond the boost to the economy that vaccines will bring, President Joe Biden and Congress are trying to pump another $1.9 trillion into the economy. That could ignite inflation after years of remaining relatively dormant.

Overall, though, analysts are forecastin­g the boom in revenue to be more than enough to offset increases in price, and they’re forecastin­g even stronger growth ahead.

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