The S&P 500 has risen nearly 70% since October 2022, with significant contributions from a select group of stocks known as the “Magnificent Seven.” This group has outperformed the index due to superior earnings growth. In the first quarter of 2023, these companies collectively achieved a 27.7% increase in earnings, exceeding expectations of 16.0%. Key performances included Amazon with earnings per share (EPS) of $1.59 (expected: $1.36, up 62%), Alphabet at $2.81 (expected: $2.01, up 49%), and Meta Platforms at $6.43 (expected: $5.22, up 37%).
Despite this success, analysts predict challenges ahead. By the first quarter of 2026, the Magnificent Seven are forecasted to have earnings growth of 10.2%, slightly below the anticipated 10.3% for the remaining S&P 500 companies. Tesla notably struggled, with EPS of $0.27 compared to expectations of $0.41, representing a 40% year-over-year decline.
Analysts suggest investors should be cautious as the disparity in growth rates among the Magnificent Seven may narrow, and smaller S&P 500 firms may present valuable investment opportunities moving forward. The disparity between the, earnings growth rates of larger and smaller firms is likely to change, prompting a reassessment of investment strategies.
