The year 2022 saw a significant decline in mega-cap growth stocks, particularly the Magnificent 7 – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – which experienced a 14% decrease in earnings. In contrast, the other S&P 500 companies enjoyed 9% growth during the same period. However, these technology giants have since rebounded, with the Mag 7 growing their earnings by 31% in the past year and are expected to continue posting strong profits. Their performance has significantly contributed to the overall return of the S&P 500, accounting for 89% in 2023.
Despite their impressive growth, JPMorgan Asset Management (JPMAM) believes that the market’s dependence on these top companies may not be sustainable. While they don’t see it as a bubble, they acknowledge that the market is top-heavy and the current situation may need to be adjusted for long-term stability. Some of the Magnificent 7 members like Nvidia and Microsoft have outperformed others like Tesla this year.
JPMAM projects a narrowing gap between the Magnificent 7 and the remaining S&P 493 companies in the upcoming quarters. They anticipate 17% earnings growth in the fourth quarter for both groups, marking a significant improvement for the non-Mag 7 firms, which started the year with a 2% decline. All market sectors are expected to experience earnings growth in Q4, including healthcare, energy, and materials, which previously saw declines earlier in the year.