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What earnings could look like if the US enters a recession

In a note, JPMorgan Chase & Co. Strategist Mislav Matejka wrote that diminishing pricing power could sting revenue and margins regardless of contracting growth. Inversely, Citigroup US Equity Strategist Scott Chronert expects profits and his S&P 500 (^GSPC) target to remain resilient into a recession.

Yahoo Finance Live compares the two strategists' notes and incorporates third-quarter earnings results into their respective fourth-quarter outlooks.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

[AUDIO LOGO]

- There is this vision on the street over the state of corporate earnings. JP JPMorgan Chase strategist, Mislav Matejka, saying that strikes could be a more bearish tone, saying that strinking pricing power will eat into overall revenue and margins regardless of whether growth contracts.

He wrote in a note to clients profit growth in 2024 could quote, "end up more flattish rather than up, and this is without having recession as a base case. So if we have an outright contraction, then corporate profits are likely to fall." End quote.

Citi group's Scott Chronert, on the other hand, says that he expects profits to hold up even if the economy slips into recession. Chronert wrote in his recent note that he sees a more consistent growth outlook for sectors. Chronert is more bullish overall recently boosting his year end S&P 500 target to 4,600, which is where the index is actually approaching right now as we've continued to watch this market come back over the last few weeks here for the S&P 500.

- Yeah. And of course, when you take a look at some of these calls out here, not exactly surprising when we know JP Morgan's Matejka here has been bearish despite the rally that we have seen in stocks really since the start of the year but especially what we've seen play out over recent weeks.

So these outlooks coming as we do near the end of the third quarter earnings season. Taking a look at the results, S&P profits rising 4% in the third quarter was compared with the most recent projections of just about a 1% decline, 1.2% decline. So clearly an outperformance here as we look at the third quarter, what that means for the current quarter numbers and what that means for 2024 right now is what is being debated.

In terms of what Citi sees, they see profits holding up even if the economy slips into a recession. And we were just speaking with a member of the Citi's team earlier in the show, Drew Pettit, and he was laying out exactly why they see or what they see driving corporate profits ahead in 2024.

And taking a look at some of those numbers, he was making the case. And like you just said with the leader of this note here, that they still see that being the case even though we could potentially see a recession. So even if we do see a contraction, they do see corporate profits holding on.

And like the point that he made, the market's not the economy. And so exactly, you got to tune all the distinction between the two. And he still sees reasons to be bullish at least at this point when you look ahead to corporate profits.