There are early signs that the stock market is starting to expand beyond just tech and AI-focused companies, helped by positive trade news. Last week, the equal-weight index hit a new record, surpassing its November high. It also outperformed the S&P 500 for the fourth time in 13 weeks. If this trend continues, it could mark its first monthly win over the S&P 500 since March.
But can it keep up? This week, around 160 S&P 500 companies are set to report earnings, including big names like Meta and Microsoft on Wednesday, followed by Amazon and Apple. These four companies are expected to have a bigger impact on the market than all the others combined.
According to LSEG’s Tajinder Dhillon, the “Magnificent 7” tech giants are expected to contribute less to overall earnings growth—dropping to 37% this year and 27% next year. The gap in earnings growth between the “Mag 7” and the rest of the market is also narrowing, with 16.4% vs. 7.7% in the second quarter, the smallest difference since 2023, and it’s expected to shrink further in the third quarter.
As chatter grows that we may be starting to see a significant shift, i think this could be misguided. The earnings potential by the Magnificent 7 stocks is unparalleled especially as monetizing AI is only starting.
This means that the current premium on these stocks, at least from my point of view, remains justified. Earnings this week from Meta, Microsoft, Amazon and Apple may provide further insights.
For now though, the topic is likely to remain an intriguing one.
