(Bloomberg) -- The financial world is moving fast, as the Federal Reserve prepares to start cutting interest rates and stock indexes are at or near all-time highs. 

But one thing hasn’t changed with the times: Wall Street’s expectations for corporate profits.

Analysts project that companies in the S&P 500 Index will earn around $247 per share in 2024, according to data compiled by Bloomberg Intelligence. That’s basically the same level they were at on May 5. In that time the index has risen 14% as the market overcame fears about a banking crisis, rising inflation and the possibility of an imminent recession. 

Yet, Wall Street’s earnings estimates for companies in the broad equities benchmark next year have barely moved, drifting between $243 and $248 a share.

“In this disconnect between a rapid stock rally and an unchanged view on per-share earnings in the S&P 500, something has to give,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Just because interest rates stopped going up, it doesn’t mean that stocks can keep rallying while profit estimates remain unchanged.”

While the risks that were seen earlier in the year are largely muted now, there’s still uncertainty over what an economic soft-landing could look like and just how much of it is already baked into analyst models. While optimism that the rate-tightening cycle is over could warrant a wave of upgrades in profit estimates, the battle against inflation isn’t over and the timing of interest-rate cuts remains unknown.

So investors face a tough task in assessing whether the recent rally has pushed S&P 500 stocks too high relative to their expected profits. As shares rallied while earnings estimates remained steady, valuations went from reasonable to somewhat rich. After a seventh consecutive weekly gain in the S&P 500 — the longest streak of gains since 2017 — the index is trading at 19.6 times projected earnings, 10% above its average reading in the past 10 years. 

It could be just a matter of time until sell-side analysts up their profit views to reflect the Fed’s “dot plot” that now indicates a sharper pace of rate cuts in 2024 compared to September. Just by how much they would do so, if any, is an open question. So far, they are making more downward revisions in their outlooks for next year than upgrades, according to data compiled by Morgan Stanley.

Mike Bailey, director of research at FBB Capital Partners, said 2024 profit outlooks look more realistic than they did back in May now that the Fed opened the door to a soft landing and companies posted decent third-quarter results.

Investors are shifting attention to corporate earnings for the final quarter of this year now that the Fed’s interest-rate decision and inflation data are out of the way. JPMorgan Chase & Co. will post its quarterly results in four weeks, jump starting earnings season.

The S&P 500 is expected to post a 1.6% profit growth in the three months through December, after third-quarter results marked an end to a three-quarter streak of contracting profits. 

The S&P 500’s earnings contraction was long but relatively shallow, which could open the door to a smaller profit expansion than the bulls hope, if history is any guide. From peak to trough, the S&P 500 posted a 13% EPS contraction when viewed on a trailing 12-month basis, well short of the median 26% peak-to-trough drop since the late 1960s, data compiled by Bloomberg Intelligence show.

A profit bottom since that time has preceded a nearly 16% median expansion in per-share earnings in the next 12 months, excluding the financial crisis and the pandemic, BI’s data show. That’s above the 11% earnings growth expected in the S&P 500 for next year.

Marshall Front sees more upgrades in earnings estimates to come. 

“Expectations for 2024 and 2025 will likely be lifted by the sea change in expectations around the trajectory of the Federal Reserve,” Front, chief investment officer at Front Barnett Associates, said. “The exuberance in share gains is warranted, to a degree: At last, people are relieved that the Fed won’t keep raising higher.”

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