| S&P 500 consensus earnings expectations for 2024 look “too optimistic,” JPMorgan strategists said in a Monday note.
Analysts’ projections imply that S&P 500 earnings per share (EPS) will jump 17% between Q1 and Q4 this year. According to JPMorgan, this suggests that S&P 500 companies need to exhibit “very high topline growth or a very strong expansion in profit margins.”
“We are skeptical of both,” strategists added.
In this context, JPMorgan strategists analyzed the relationship between S&P 500 revenue growth and nominal GDP growth.
They estimate that 13% nominal GDP growth in the U.S. would be required to align with a 17% increase in S&P 500 revenue. In addition, the current S&P 500 EPS-to-Sales Per Share ratio is already historically high, “leaving little room for further expansion,” they wrote.
As a matter of fact, JPMorgan said that both S&P 500 revenue and earnings growth are converging towards a mid-single-digit rate, around 5%, marking a sharp contrast when compared to the optimistic high double-digit growth estimates that are projected for this year.
Reflecting on the ongoing Q1 reporting season, JPMorgan strategists believe it hasn't been particularly impressive, despite the S&P 500 companies' Q1 2024 EPS exceeding analysts' initial expectations by 9%.
“At $55.5, the S&P 500 Q1 2024 EPS is down both against Q4 2023 ($57.2) and Q3 2023 ($58.4),” they highlighted.
Overall, JPMorgan said it maintains a defensive approach to equities and remains hesitant to pursue the post-FOMC rally.
They base their cautious stance on the expectation that a prolonged high-interest-rate environment will continue to pressure equity markets, increasing concerns about a potential hard landing.