US celebrates as profits soar

Wall Street is celebrating the highest corporate profit margins in decades. But as profit growth looks set to peak, is the party nearly over?

Get the champagne out, Wall Street. US corporate profit margins are at their highest in many decades and the latest earnings season is shaping up to be another excellent one. Of the companies who have already reported, two-thirds have beaten estimates. "The winning streak is showing no signs of ending yet," says Jennifer Hughes in the FT. "There is little expectation that corporate America is about to fall off any cliff."

But not everyone is so upbeat. "A recession over the next two or three years is likely, and a marked decline in profit margins is virtually certain," says Andrew Smithers, quoted on Bloomberg.com. And when economic growth and profit margins come down, it may be with a thud, as central banks battle inflation with higher rates. In the process, equity values may halve, says Smithers, who has a good track record in this respect: he correctly predicted double-digit downturns on Wall Street in 2000 and in Japan in 1990.

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