Recessions are rare – or, at least, government statistical offices are slow to recognize them. But big companies don’t take risks. They are working hard to avoid an earnings recession, generally defined as two consecutive quarters of declining earnings.

Looking at the earnings of S&P 500 companies, it doesn’t seem like an economic slowdown is on the horizon, even as concerns about a global economic crisis are growing. These larger companies can be more resilient, with their currency hedging tools and diversified businesses, you might say.

Or perhaps there is “creative accounting” at work, suggests Charles Gave of Gavekal Research, who began his career in finance in 1970. He compared S&P 500 earnings to US earnings. broader economy and found that historically the two sets of data diverge on the brink of recessions.

In fact, this earnings divergence may be an even better predictor of recession than an inverted Treasury yield curve. Since 1960, every time S&P 500 earnings have climbed at least 20% above overall corporate earnings, a recession has ensued, Gave notes. We find this divide.

Here’s the logic: as business conditions deteriorate, large publicly traded companies find it harder to generate profits that Wall Street likes. So their accountants come to the rescue. But the accounting magic has its limits, so their income inevitably drops, again causing the two sets of data to converge.

I find Gave’s explanation plausible. Here is a concrete example, played in Asia. In August, SoftBank Group Corp. announced that it has reduced its exposure to shares of Alibaba Group Holding Ltd. at 14.6% against 23.7%. As a result, he expected to record about 2.4 trillion yen ($16.6 billion) in gains from the revaluation of his remaining stake in Alibaba.

It would be a welcome cushion. In the first half of this year, SoftBank suffered record losses due to the poor performance of its two Vision funds.

In this case, there was no inflow of funds; the only adjustment concerned the accounting treatment. Now that SoftBank owned less than 20% of Alibaba, the Chinese e-commerce giant no longer needed to enter SoftBank’s financial statements as a partner. As a result, SoftBank can be treated as a passive investor, allowing it to record unrealized mark-to-market capital gains that it previously could not.

This may explain why equity strategists are bearish on stocks. The S&P’s price-to-earnings ratio still embeds “a completely misplaced equity risk premium given rising earnings risk,” Morgan Stanley noted this week. How reliable are the revenues we see?

Already, major companies are revising their forecasts at a faster pace than last year. All it takes is a few more profit warnings from global business leaders like FedEx Corp., and the facade of big corporate profits will crumble.

More from Bloomberg Opinion:

• Private equity giants have cash flow problems: Shuli Ren

• Why investors face even more instability: Mohamed El-Erian

• What happens after a week that shook the world: John Authers

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She holds the CFA charter.

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