Corporate profits are at record highs. These 4 factors could sink them

Times are good for big business. In the last quarter of 2025, even though economic growth and job creation slowed to a crawl, pretax corporate profits set a record, reaching their highest share of gross domestic product since recordkeeping began in 1947.

This year, Wall Street analysts are predicting that profits are likely to be even stronger despite dismal consumer sentiment and high energy costs. For example, Mike Wilson, chief investment officer at Morgan Stanley, is sticking to his prediction that earnings of the S&P 500 companies will rise 17% in 2026.

Optimism that the profit juggernaut will keep rolling drove the S&P 500 to a record this past week. Will it? To figure that one out, you need to be able to explain why it’s happening in the first place, which is not easy. Experts have different ideas, but many of them share a belief that the headroom for further profit growth is shrinking.

Here are some of the leading theories for why profits have soared so high -- and what could sink them.

Technology

Suppliers of technology got a huge profit boost from sales of networking gear during and after the COVID-19 pandemic, and they’re getting an even bigger boost from the artificial intelligence boom. The tech sector as a whole has experienced much faster growth in stock prices and measured productivity growth than the rest of the economy, said Jim Paulsen, a veteran market strategist who writes the Paulsen Perspectives newsletter.

Surprisingly, though, strong profit growth hasn’t been confined to tech. “The recent surge in corporate profits was driven by retail and wholesale trade, construction, manufacturing and health care,” not tech, according to an analysis last spring by Ricardo Marto, an economist at the Federal Reserve Bank of St. Louis. Marto said last week that the surge in profits had continued across most of these industries in the year since.

One possible explanation for Marto’s finding is that tech investment is genuinely paying off outside the tech sector. If so, that would indicate that there’s room for profits to run. AI is beginning to boost profits by automating some jobs out of existence. And before AI, there was the postpandemic productivity dividend.

“In my previous job before COVID, I had a video monitor that was set up to do videoconferencing at my desk,” said Diane Swonk, chief economist of consulting firm KPMG. “I never used it once. It was kind of a big eyesore.” Since COVID, she said, “a lot of things we didn’t use suddenly got applied.”

Continuous Growth

Recessions crush profits far more than they reduce wages, so every year without one is a year the profit share holds up. Outside of the pandemic shock in 2020, the United States has not experienced a recession since the financial crisis ended in 2009.

That’s a remarkable stretch, and it could continue. The traditional preconditions for a downturn -- overextended consumers, overleveraged businesses, excess staffing -- are largely absent, Paulsen said. Household debt-to-income ratios have been falling since 2009, corporate balance sheets are strong, and pessimism itself has kept everyone cautious enough to avoid the kind of overreach that typically ends an expansion.

“You usually don’t have a recession when everybody expects a recession, because everybody’s on their best behavior,” he said.

Market Power

Corporate concentration has been rising for a century, according to research from the University of Chicago Booth School of Business. Typically, fewer than 1% of corporations now account for more than 90% of corporate profits.

Fewer, bigger firms tend to have more pricing power, which translates into fatter margins. Ownership matters, too. A 2025 Chicago Fed study found that a 1-percentage-point increase in concentrated institutional ownership of a firm is associated with a 0.17% reduction in its payroll -- evidence that dominant shareholders are pressing companies to keep labor costs lean.

Concentration may not keep rising, though. If a Democrat wins the White House in 2028, Biden-style trustbusting could return, constraining profit growth. That’s a segue into the last theory: policy.

Policy

Congress and the Federal Reserve have a lot to do with the profit surge. Over the past four decades, the federal tax rate on corporate profits has fallen to 21% from 46%. Interest rates have fallen as well.

Michael Smolyansky, a Fed economist, has calculated that declining interest and tax rates “mechanically” explain more than 40% of real corporate profit growth from 1989 to 2019.

Corporate profits have also benefited from the erosion of labor-market regulation, the decline of union membership and the broader political realignment that began with the election of President Ronald Reagan, said Michalis Nikiforos, an economist at the University of Geneva and the Levy Economics Institute of Bard College.

But interest rates aren’t falling anymore, fiscal policy has become less stimulative, and the pro-business realignment under Reagan seems to be coming undone.

There are lots of forces acting on profits, but one clear one is that profits this far above the historical norm tend to generate pushback.

“What’s happening to workers will be a major issue in the midterms,” Swonk said. “It doesn’t matter what side of the aisle you’re on. A backlash can be quite disruptive to profits.”

This article originally appeared in The New York Times.

Copyright 2026 The New York Times Company

This story was originally published April 18, 2026 at 12:51 PM.