The profit recession for corporate America ended in Q3.

EPS growth was around 4% last quarter. Excluding energy, profits grew by around 10%.

The downturn was shallow and short-lived, which for some feels ominous given what many economists still contend are very high US recession odds.

Of course, not everyone believes recession odds are actually elevated. Goldman, for example, puts the chances of a downturn for the world’s largest economy at just 15% over the next 12 months. While I’d suggest the chances are meaningfully higher than that, I’d be guessing just like everyone else. And make no mistake: Everyone is just guessing.

The cacophony of recession banter on finance-focused social media isn’t just deafening, it’s maddening. Monetizing bear propaganda used to be a cottage industry. Now it’s a profit machine comprised of multiplying clones all running the same general playbook. The echo chamber has descended into abject farce, exemplified by overlapping chart credits where a single visual is attributed three, four and in some cases even five times, as everyone appends their own brand name to the list of sources.

In any event, suffice to say the end of the earnings recession in America hasn’t convinced the bear crowd that an economic contraction will ultimately be skirted, and the suspicion that a recession for the economy still looms “informs” speculation of a theoretical double-dip profit downturn, which can then be used to justify a bearish outlook for equities.

That raises this question: “Can EPS accelerate when GDP decelerates?” Note the quotes. That’s a query from BofA’s year-ahead equity outlook and the answer, from the bank’s Savita Subramanian, is a qualified “yes.”

Historically, just a fourth of periods defined by decelerating GDP growth were accompanied by accelerating profit growth, suggesting the odds of earnings growth picking up sharply into the teeth of a faltering economy are low. That’s intuitive. But, during periods when EPS outpaced GDP stocks did well, returning almost 14% on average. As the table on the right (below) shows, the hit rate during such periods was 82%.

If you ask Subramanian, there are “compelling reasons why EPS could outpace GDP in 2024,” one of which is just that we’ve already seen a profit downturn. During this year’s earnings recession “companies cut costs and adapted to the weaker demand environment,” Subramanian wrote, adding that “history suggests earnings typically recovery stronger than they fall, as downturns usually remove excess capacity, resulting in leaner cost structures and improved margin profiles.”

She put some numbers to that latter contention. On average, trailing earnings for the S&P 500 exceeded prior peaks by 5% “after the same number of quarters into recovery as those into a downturn.”

More interesting, perhaps, was the historical parallel Subramanian conjured. Typically, she said, earnings trough when GDP troughs or perhaps a quarter later. However, in the 1950s an earnings recession preceded an economic downturn. Between Q4 of 1950 and Q2 of 1952, S&P EPS plunged 18% peak-to-trough, even as the US economy expanded.

Subramanian narrated what came next. “By 1953 when GDP peaked two quarters after the peak in Fed funds rate, EPS had recovered by 7%, then rose 5% further while GDP contracted 1% during the economic recession of 1953-54,” she wrote.

The figures show why that episode may be relevant today. As Subramanian went on to say, “inflation peaked two quarters before EPS troughed on a TTM basis,” and that’s “similar to how the current EPS cycle played out.”

Will any of that convince skeptics? Well, no. Of course not. Part of being a skeptic (and particularly a macro-market skeptic) entails never being convinced of anything and being especially wary of the suggestion that vexing situations might resolve in anything other than a calamity.

But keep an open mind. After all, the only surer way to go broke in markets than being a Pollyanna is to be a permabear. As Subramanian put it earlier this month, “Extreme fear can be just as costly as greed.”

Related: BofA’s Subramanian Sees S&P 5,000 In 2024