Corporate profit expectations on Wall Street may be inflated. S&P 500 companies may be on the verge of a turnaround after a year of decline. Experts predict a 0.2% increase in profits for the summer, marking the first growth in a year. The previous three quarters witnessed falling profits due to rising costs and a delicate global economy, reports the Associated Press.
The stock market’s upward trajectory this year is hinging on the hope of returning profit growth. “Now, the bull case is shifting to one premised on reaccelerated earnings,” says Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management.
However, a significant challenge looms in the form of persistent inflation, which, despite some easing, continues to erode corporate profits. Several major airlines have cautioned about the impact of rising fuel costs on summer profits.
Inflationary pressures aren’t limited to fuel costs; workers across various sectors are demanding higher pay, frustrated by their inability to keep up with inflation while CEO compensation rises. The United Auto Workers union, for instance, rejected offers of a 20% pay increase over the next few years, demanding nearly double that for employees at Ford, General Motors, and Stellantis.
Other companies like UPS, known for avoiding a worker strike last month, are feeling the pinch. With delivery drivers set to earn an average of about $170,000 annually in pay and benefits, analysts have revised earnings expectations downward.
The direction of corporate profits in the coming months remains uncertain, and the impact of inflation on businesses will likely play a significant role in shaping the financial landscape.