Chart in Focus: Broadening earnings growth signals healthy US equity market

Nick Samouilhan, PhD, CFA, FRM, Co-Head of Multi-Asset Platform
Alex King, CFA, Investment Strategy Analyst
3 min read
2025-07-31
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The views expressed are those of the authors at the time of writing and are subject to change without notice. Other teams may hold different views and make different investment decisions. This content is for informational purposes only, should not be viewed as a current or past recommendation and is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Forward-looking statements should not be considered as guarantees or predictions of future events.  For professional, institutional, or accredited investors only.

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.

Figure 1
Earnings growth is broadening out in the US equity market

Investment implications

  1. US managers may benefit from more opportunities for growth across the entire market, compared to the last phase of tech-led recovery, especially as the advantages of artificial intelligence disseminate to a more diverse array of companies
  2. With earnings expectations now diverging considerably across regions, our base case of regional divergence continues to play out — be dynamic and look for opportunities to rotate
  3. Credit should benefit from continued strength in earnings, but with tight spreads, there may be more upside for equities versus credit at this point in the cycle

What we are watching

  1. Ability for companies to continue to grow much faster than the economy, particularly as the economy likely slows from above-trend growth in the coming quarters
  2. Impact on market concentration as sources and the trajectory of growth change

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