JPMorgan and Citi disagree about 2024 earnings outlook

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JPMorgan and Citi disagree about 2024 earnings outlook
Credit: © Reuters.

It comes as no surprise that strategists at JPMorgan and Citigroup have different outlooks for corporate America’s profit outlook.

JPMorgan strategists have recently urged clients to sell stocks and bonds and increase allocation to commodities. On the other hand, Citigroup strategists are much more positive about the outlook for stocks.

JPMorgan’s view

JPMorgan strategists caution that corporate earnings per share growth may not meet consensus expectations, potentially ending up flat or declining. They cite downside risks due to negative Producer Price Indexes (PPIs) and project slower U.S. real GDP growth in the coming year, with no anticipated acceleration, especially in Europe.

“Next year corporate EPS growth could end up more flattish, rather than up, and this is without having recession as a base case. If we have an outright contraction, then corporate profits are likely to fall,” the bank’s equity strategists said.

Concerns are also raised about the possibility of EPS revisions leading to a decline in price-to-earnings (P/E) multiples.

While most U.S. sectors are expected to witness year-over-year EBIT margin growth, the strategists express caution, identifying potential headwinds from increased costs of goods sold, lagging wage increases, higher financing costs, and potential deterioration in sales mix and volumes.

Moreover, there are downside earnings risks in banking, autos, consumer discretionary, and industrials (excluding aerospace and defense). On the other hand, JPMorgan anticipates resilient earnings in utilities and potential support for energy and mining from better spot commodity prices.

Citi’s view

In contrast, Citigroup strategists maintained a positive outlook, foreseeing further upside for the fourth quarter based on the pace of growth in quarterly U.S. earnings.

While Citi expects analyst 2024 projections to decrease in the coming quarter, the broker still expects to see mid- to high-single-digit growth rates.

As a result, the strategists maintained their estimate for earnings per share of $245 and generally kept a constructive outlook for 2024.

Back in July, the strategists lifted their end-2023 target for the S&P 500 to 4,600.

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