One narrative says corporate profits have virtually never been healthier.

It’s hard to argue the point on many (most) aggregate metrics.

Beneath the surface, there’s quite a bit of nuance, though. A lot of it — the nuance — revolves around the all-too-familiar “haves” versus “have-nots” debate which, in the corporate context, is basically a blue-chips versus junk discussion or a large versus small juxtaposition.

All of that’s well-worn territory by now, and I’ll return to it below. But first, some market participants continue to fret about the apparent disparity between aggressive rate-cut pricing and expectations for robust aggregate profit growth. I’ve been over this before, but it bears mentioning again on the eve of the first Fed cut.

Have a look at the figure below, from SocGen’s Andrew Lapthorne.

The point is to suggest a chasm between rate-cut pricing and profit growth, both current and projected.

“Headline consensus profit growth globally is still 12% this year, with an acceleration to 13.5% seen in 2025,” Lapthorne remarked, editorializing around his chart. “This seems like a completely contradictory message — expecting sharp US rate cuts yet also continued strong earnings growth.”

If past is precedent — and as noted here on Monday, it may not be — 200bps of Fed cuts over 12 months doesn’t bode well for corporate bottom lines. “These cuts would historically be consistent with a 20% or more decline in reported profits and so a 30%+ drop in forward earnings,” Lapthorne said.

The logic there’s straightforward: If the Fed’s cutting that fast, in such a compressed window, the economy’s surely taken a turn for the worse, and that typically means declining profits.

Writing earlier this week, Morgan Stanley’s Mike Wilson noted that although earnings have held up, revisions breadth “has been stagnant for most of the last two years,” a trend mirrored by PMIs.

“Neither earnings revisions breadth nor PMIs are what’s supporting the current levels of the S&P 500, fundamentally speaking,” Wilson went on.

So what is? “Supporting the current levels of the S&P 500,” I mean. “It appears the market has moved higher ahead of a dovish policy shift in anticipation of a growth rebound,” Wilson said. “Thus, the onus is on the growth data to improve from here to support valuation.”

Here again it really just comes back to the same macro-policy discussion. Or the same macro-policy question: Will we look up 12 months from now and see only the second soft landing in modern macro history or will we see a Fed that was, as Elizabeth Warren warned in a letter to Jerome Powell this week, already “too late”?

Professional investors exhibit a bit of cognitive dissonance on that question. On one hand, the share of professional investors who said monetary policy’s “too restrictive” in this month’s BofA fund manager poll hit a 16-year high. And yet, nearly eight in 10 survey panelists expect a soft landing. Those two opinions aren’t mutually exclusive, but the collocation feels a bit tense.

Note that the same poll showed a third of respondents wanted companies to prioritize cash returns to shareholders via buybacks, dividends and/or M&A.

As the figure shows, that was the highest share in over a decade.

If you’re a Microsoft, your response is “No problem! Happy to do it.” The company raised the dividend and announced a fresh $60 billion buyback program early this week.

If you’re… well, not a Microsoft, such demands probably seem onerous. Cruel, even. “If we peel away the very largest companies that dominate the market cap, profits are no longer growing,” SocGen’s Lapthorne went on, in the same note mentioned above.

As the figure above shows, the bottom half of companies “are already seeing double-digit declines,” as Lapthorne put it.

“The debate,” he said, “is the extent to which the market-cap weighted index is representative of the broader economy, where profits look increasingly recessionary.”