A few days ago, I revisited “the enduring paradox” of an equities bull case built on rate-cut hype.

Long story short, there’s an inherent tension between expectations for deep Fed cuts and buoyant risk assets. While it’s by definition true that lower rates can buoy equity prices through the valuation channel, the macro rationale for rate cuts (i.e., the threat of recession) argues for slower profit growth. In order for the bull case to work, multiple expansion has to outpace lower earnings.

As SocGen’s Andrew Lapthorne put it, “Once again we have the contradiction of an expensive US equity market expecting both strong EPS growth over the coming years yet accompanied by significant interest rate cuts to stave off recession. Both cannot be right.”

With that in mind, have a look at the figure below from Goldman’s David Kostin (the red oval annotations are mine).

There’s a helluva discrepancy between 2025 bottom-up EPS revisions and the historical median going back four decades.

Investors often have a difficult time with charts illustrating the trend in revisions, but it’s actually quite simple: Typically, company analysts revise profit estimates lower over time. The dashed line in the chart shows you how that process normally unfolds. Currently, 2025 EPS estimates aren’t just tracking better than the typical downward revision, they’re being revised higher.

The figure also shows that estimates for 2024 haven’t been cut by anywhere near as much as the historical experience suggests they “should” be. Specifically, Goldman’s Kostin noted that “2024 estimates have only been reduced by 2% since last March, compared with the historical average of -6% at this point in the calendar year.” By now, 2025 estimates “should” be 2% lower. Instead, they’re 1% higher.

Why is that a problem? Well, maybe it isn’t. But coming quickly full circle, you do have to marvel and the incongruity not just between the 2025 revision trajectory and history, but more to the point, between the 2025 revision trajectory and the history of earnings forecasts during rate-cut cycles, as illustrated below by Lapthorne.

The two charts aren’t apples-to-apples exactly, but the point is just that the dissonance illustrated by Kostin is even more pronounced (glaring) in the context of expectations for Fed cuts.

Of course, as noted in the linked article above, a lot hangs on whether Fed rate cuts can be viewed, in hindsight, as “risk-management” cuts delivered to facilitate an eventual soft landing or whether history will show that the cutting cycle which’ll begin next month was instead the beginning of easing to combat a downturn.

All I’d say in that regard is that soft landings are exceedingly rare.