Magnificent 7 Earnings Approaching! Another Surprise for the Market?

The Q4 earnings season is in full swing, and the Magnificent 7—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—remain the focal point.  Analysts at JPMorgan, led by Mislav Matejka, project that these tech giants will deliver 22% earnings growth in Q4.  

While this marks a slowdown compared to prior quarters, it's important to note that the Magnificent 7 have consistently exceeded market expectations for the past seven consecutive quarters.

Despite the narrowing growth gap between the Magnificent 7 and other S&P 500 companies, their absolute earnings contributions remain significant. JPMorgan's report highlights that excluding the Magnificent 7, the S&P 500 is only expected to achieve 5% earnings growth for Q4, compared to the broader index's 8% expected growth. This demonstrates that the Magnificent 7 continue to serve as the primary engine of profitability for the U.S. equity market.

Magnificent 7: A Cornerstone for U.S. Market Growth

While the Magnificent 7's growth has slowed, their dominance remains clear.  For Q4, these tech powerhouses are expected to achieve 22% earnings growth, vastly outperforming the rest of the S&P 500, which is forecasted to deliver only 5% growth excluding the Magnificent 7. This significant disparity highlights their importance as a driver of U.S. market performance.

For investors, the Magnificent 7 continue to offer a compelling mix of growth and resilience.  With their Q4 earnings reports on the horizon, their results could once again reinforce their role as the backbone of the U.S. equity market, delivering not just growth but also stability in an uncertain global environment.

U.S. Economic Strength Supports Positive Earnings Outlook

The strong U.S. economy further enhances the outlook for corporate earnings. Real GDP growth in 2025 is projected to reach 2-3%, significantly higher than Europe's forecasted 1% growth. This robust economic momentum, coupled with typical seasonal factors that boost Q4 earnings, could lead to positive surprises for U.S. corporates.

However, analysts note a broader downward revision in earnings expectations. The S&P 500's Q4 earnings are now expected to grow by 8% year-over-year, a notable reduction from the 18% growth forecasted earlier in 2024.    Even so, the Magnificent 7 remain well-positioned to outperform, reflecting their resilience and growth potential amid a challenging macroeconomic environment.

Weaker European Outlook Highlights U.S. Market Strength

In stark contrast to the U.S., Europe faces a far bleaker earnings outlook. JPMorgan forecasts that Q4 earnings for the Stoxx 600 index will decline by 1% year-over-year, driven by weakness in key sectors such as energy, financials, and consumer discretionary.  While cyclical sectors in Europe are projected to grow by 5%, this modest gain is insufficient to offset the drag from other areas.

This divergence underscores the relative appeal of U.S. equities, particularly the Magnificent 7.    As global markets grapple with uncertainty, the ability of these tech leaders to consistently deliver robust growth solidifies their position as a critical component of investor portfolios.