2021 was a banner year for earnings. But by the tail end of 2022, earnings decelerated into recessionary territory as the pandemic-era fiscal stimulus and release of pent-up consumer demand that had initially fuelled earnings recovery was seemingly spent. However, markets eventually found their hero in the mightily monikered “Magnificent Seven”, as the companies best poised to harness and benefit from new innovations within artificial intelligence were rewarded accordingly. These companies, concentrated within the technology and media sectors, quickly experienced a resurgence in earnings in 2023 that vastly outpaced the broader market.

While constituency has since changed as to which companies belong in the AI pantheon — “Magnificent Seven” quietly dropped to “fab five” and so forth — the overall trend of mega-cap stocks within tech and media leading earnings growth has remained a constant over the last year. However, that paradigm may be set to shift; over the next 12 months, earnings growth is expected to broaden beyond tech and media to the rest of the market. Consensus forecasts project annual S&P 500 earnings growth of 15% by the start of 2025, which could be supportive for returns outside of the current bias.