The global economy is slowing and many countries are either already in recession or about to enter it. Investors are well aware that the downturn will clobber corporate profits. But how great will the impact be and how much is already reflected in share prices?rnThe issue is all the more pressing because profits have been so strong in recent years. After falling sharply in 2000-02, earnings rebounded very rapidly between 2003 and 2006. Indeed, as a percentage of GDP, American profits reached their highest level in a generation. A lot of money now rides on whether that improvement was ephemeral.rnAmerican firms are now reporting on the July-to-September period and it looks likely to be the fifth quarter in a row that earnings will decline. Two leading technology companies, Texas Instruments and Sun Microsystems, were among the latest to disappoint this week.rnProfits tend to fall very rapidly in recessions. This is because of the "operational gearing" of businesses. Most companies have high fixed costs; once those costs are covered, profits can surge.
展开▼
