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The broadening of the stock market rally has become a crucial theme during the second half of 2024.
Amid the start of rate cuts — and economic data that’s showed the US economy remains in better shape than initially feared — the recent push to new record highs has largely been about companies not named Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), or Nvidia (NVDA).
But the debate over whether the market’s next leg higher will be led by just a few large tech companies — as was the case in 2023 and the early part of 2024 — continues to roll on among investors.
In a note on Friday, data from FactSet showed that earnings for the 493 companies in the S&P 500 outside the “Magnificent Seven” are expected to grow by an average of more than 13% over the next five quarters. Conversely, the Magnificent Seven are expected to see earnings grow by an average of nearly 19% over the same time period.
Notably, this represents a pickup in growth for the 493 from 2024 and a notch lower for the Magnificent Seven. This more positive trend in the 493 is one of the reasons strategists have called for a continued broadening out of the rally. But as our chart below shows, the difference in trend growth is a narrowing race.
And some believe Big Tech could still be the winner.
“The Mag 7 are still expected to post superior (and presumably more reliable) earnings growth than the rest of the index,” DataTrek co-founder Nicholas Colas said.
