Even if the economy enters a recession, Citigroup Inc.’s Scott Chronert anticipates profitability to remain strong. However, strategist Mislav Matejka of JPMorgan Chase & Co. believes that declining pricing power will reduce total sales and margins, regardless of whether growth slows down.
Matejka stated in a note that profit growth next year “could end up more flattish, rather than up, and this is without having recession as a base case” since “the starting point of margins is elevated.” “Corporate profits are likely to decline if we experience an outright contraction.”
Matejka has maintained his poor outlook on markets this year, even though the S&P 500 has rallied 18%. His pessimistic remarks come as US corporations are about to experience an early end to an earnings slump. According to figures provided by Bloomberg Intelligence, S&P 500 earnings increased by 4% in the third quarter, defying analysts’ predictions of a 1.2% fall.
According to the statistics, economists anticipate an 11% increase in earnings for 2024 following a 0.5% decline for the entire year 2023. But as interest rates continue to rise, dangers to economic expansion are mounting, and bellwethers like Target Corp. and Walmart Inc. have raised worries about the state of consumers, who drive two-thirds of the US economy.
According to a Citigroup indicator, there have been more downgrades to US profit projections than upgrades for the past nine weeks, which is the longest run since February. The bank’s equities strategist, Chronert, does anticipate a decline in analysts’ forecasts for 2024 in the upcoming quarter, but he said that this would merely make the bar lower for businesses.
In a letter dated November 17, Chronert stated that despite the possibility of an economic downturn, he expects “a more consistent” growth prognosis for sectors with regard to 2024 earnings. “From a top-down perspective, earnings can increase during a mild recession as well.”