Wall St. bullish as profits drop in 2nd quarter

Earnings for big U.S. companies were historically bad last quarter and yet still much better than expected.

CEOs across the country are almost finished telling investors how their companies fared from April through June, when pandemic-related shutdowns pummeled the economy into the worst recession in decades. With just a handful of S&P 500 companies still to report, their combined profit is down roughly 33% from a year earlier, according to FactSet.

That’s on par with the 35% plummet recorded in the first quarter of 2009, during the worst of the Great Recession. But analysts came into this reporting season expecting even worse: they’d forecast a 44% plunge. And on Wall Street, beating expectations is often more important than whether earnings rise.

The not-as-terrible-as-expected results are bolstering investors’ confidence that the economy is recovering. The latest earnings reports helped the S&P 500 erase its remaining losses and ascend to a new all-time high.

Stocks’ rocket ride of more than 50% began in March when the Fed and Congress promised trillions of dollars in aid. They continued to rise as reports showed budding improvement in the economy.

Investors pay particular attention to corporate profits because stock prices tend to track them over the long term.

“Earnings are the stock market’s lifeblood, and they serve as the basis for how most investors value companies,” Chris Haverland, of Wells Fargo Investment Institute wrote in a recent report.

Tech companies continued to play a huge role in the stock market as they’re on track to report modest growth for the quarter.