Is S&P 500 Earnings Growth Finally Set To Broaden Beyond the Magnificent 7?

The Magnificent 7‘s lead in driving most of the S&P 500’s earnings growth could soon come to an end, as analysts project earnings for the second quarter of 2024 will show slowing growth among the group, while the other 493 companies are expected to post the first growth quarter since the fourth quarter of 2022.

The Magnificent 7, a group that includes Microsoft (MSFT), Amazon (AMZN), Meta (META), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA) and Tesla (TSLA), dominated S&P 500 earnings growth in the last three quarters, but Bank of America analysts expect second-quarter results to show growth broadening beyond the small group of stocks.

S&P 500’s ‘Other 493’ To Post Earnings Growth

S&P 500 companies excluding the Magnificent 7 are expected to post their first growth quarter since the fourth quarter of 2022, according to Bank of America analysts.

The analysts project a slowdown for the Magnificent 7 while the other 493 constituents in the S&P 500 grow, reflecting what could be the start of a trend of growth broadening across the market.

They estimate second-quarter earnings will show 10% year-over-year growth for the S&P 500 and 6% for the index excluding the Magnificent 7, the first positive change since the fourth quarter of 2022.

The analysts said overall they expect “a typical 2% beat” for S&P 500 earnings per share (EPS) in the second quarter. A 2% beat would be in line with the historical average, but would be the smallest quarterly EPS beat recorded since the fourth quarter of 2022.

Magnificent 7’s Growth To Slow For Second Straight Quarter

The Magnificent 7 drove S&P 500 earnings growth in the last three quarters and accounted for more than half (59.5%) of the S&P 500’s total return in the first half of the year, according to data from LPL Financial. However, analysts expect the group to post its second quarter of slowing earnings growth in a row.

While the Magnificent 7’s slowing growth is expected to be made up for by the other 493 companies in the S&P 500, lackluster earnings for the group could leave investors wondering if the ride of the Magnificent 7 is coming to an end.

Enthusiasm for artificial intelligence (AI) has contributed to the Magnificent 7’s strong performance in recent quarters, but some experts have raised concerns that investors’ expectations have become so high that the companies could struggle to meet them.

Since the start of 2024, Nvidia, Meta, Alphabet, Amazon, Microsoft, and Apple have outpaced the S&P 500. Tesla is the only member of the Magnificent 7 that has not, having gained only 6.6% over the period after erasing its first-half losses with the recent rally fueled by better-than-expected second-quarter delivery numbers and anticipation around the upcoming robotaxi.