The 'Magnificent Seven'—a group of leading tech stocks—are projected to see earnings growth of 20.3% in the third quarter, which is notably lower than the anticipated 27.7% growth for the broader S&P 500, according to Russell Investments. This marks a significant change from the previous quarter, where the Magnificent Seven's earnings doubled while the S&P 500's profits grew by 30%.
The current trend indicates a weakening breadth in the market, raising concerns about a potentially 'broken' market structure. However, some analysts view this as a buying opportunity, suggesting that the broader market may soon catch up as earnings become more widespread.
BeiChen Lin from Russell Investments believes that as valuations for non-hyperscaler companies appear more attractive, the overall market performance could improve. The S&P 500 has recently reached an all-time high, largely driven by the tech sector, which constitutes nearly 40% of its market cap.
Yet, 75% of S&P 500 constituents ended September in negative territory, highlighting the disparity in performance. The upcoming earnings season, starting with Delta Air Lines and PepsiCo, may provide a chance for stocks outside the Magnificent Seven to gain traction, especially as a record number of companies are issuing positive guidance. Art Hogan from B.
Riley Wealth anticipates that sectors like small caps and healthcare, which have been underperforming, could see a rebound as earnings reports come in. Overall, while the market faces volatility, it may also present opportunities for investors to capitalize on mispriced stocks