Market participants today seem to be solely focused on the earnings of the leader of the so-called “Magnificent 7” – the small group of tech stocks that have led the markets for the last 2 years. There is good reason for the hyper focus. In the long run, earnings drive stock performance and the earnings of many of these firms have at times been as impressive as the moves in their share prices. But one of the biggest reasons for the infamous internet bubble crash in the early 2000’s was a failure of the tech darlings of the day to live up to their overblown earnings expectations.
Earnings reports give us a reality check on assumptions the market makes.
But we have already seen some of the high-flying expectations of the last two years start to ramp down.
This chart, courtesy of Bloomberg, shows the downtrend that began in December of 2024 for the Mag 7, where they currently sit in official correction territory, down a bit over 10% from that peak late last year. Although the majority of the group has reported better than expected earnings, none had a blowout quarter. And practically all have cited challenges going forward in terms of sales and earnings based on uncertainties on multiple fronts.
The good news is, for the S&P 500 with less than 50 companies left to report today, Factset reports that aggregate earnings for last quarter are close to $65.40, which compares favorably to the forecast of $64.79 and almost 76% of those companies have beat estimates.
In addition, the concentration in the market in the tech sector that defined returns previously is clearly starting to broaden out. According to Bloomberg, the top sectors so far in 2025 with respect to stock returns are healthcare, consumer staples, and financials. Tech is trending far below, almost dead last, with consumer discretionary the only sector below and both the only ones in negative territory. This is a healthy sign for the market.
We will continue to monitor the reports and the reactions, let us know if you’d like a pulse check on your portfolio.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.