Wall Street Forecasts Project Profit Recession Ends Next Quarter

With Corporate America’s earnings season nearing an end, the takeaway is clear: Challenges remain, but for a broad swath of companies the worst of the profit pain is likely over as margin-shredding inflation pressures ease.

The bad news: S&P 500 Index companies are on track to notch a third straight quarter of profit declines, with per-share earnings down 7% after more than 80% of the gauge’s members have reported. The good: the earnings outlook is getting better. Profit growth, excluding the energy sector, is forecast to return in the current quarter, Bloomberg Intelligence data show.

Optimism is returning to corporate boardrooms as data continue to show a resilient economy that can support further growth. The Federal Reserve is no longer forecasting that its aggressive tightening will tip the economy into recession. And prognosticators at Wall Street’s biggest firms, from JPMorgan Chase & Co. to Bank of America Corp., have dialed back their dire warnings of a downturn. Profit forecasts from the likes of Royal Caribbean Cruises Ltd. to Coca-Cola Co. suggest the American consumer is still willing to spend.

“We may indeed avoid a recession in the coming quarters and the brunt of the pain in corporate profits is likely behind us, as long as inflation continues to ease and the Fed doesn’t surprise with tighter policy,” said Jimmy Lee, chief executive of The Wealth Consulting Group. “Companies are navigating a high interest-rate environment and strong wage growth better than feared, which counters concerns about a slowing economy.”

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