Corporate profits rise despite the pandemic

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 4 out of 5 companies have reported stronger earnings for the last three months of 2020 than analysts expected, according to FactSet.

Such a performance was sorely needed. Stock prices have soared across Wall Street since March, even though COVID19 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.

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.