For first time since COVID, profits on rise

NEW YORK — 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% higher than a year earlier.

That may sound like only lukewarm growth, but it was much better than the nearly 10% 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% 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.