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.

“We do not believe that the inflation surprises of the first quarter are totally noise and the balance of risks is skewed towards persistent services inflation,” strategists wrote.