Market shift! The performance of the seven giants slowed down, and 493 companies will lead the S&P 500.

The leadership of the seven mega-cap companies in driving the earnings growth of the S&P 500 may soon end, as analysts expect second-quarter earnings growth to slow for the group in 2024, while the other 493 companies are expected to deliver their first positive growth since Q4 2022.

The seven mega-cap companies, which include Microsoft (MSFT.US), Amazon (AMZN.US), Meta (META.US), Apple (AAPL.US), Alphabet (GOOGL.US), Nvidia (NVDA.US) and Tesla (TSLA.US), have almost dominated the earnings growth of the S&P 500 component stocks in the past three quarters, but analysts at BofA expect the second-quarter earnings report to show a broad expansion in earnings growth, not just the seven mega-caps.

The other 493 S&P 500 component stocks will report earnings growth

BofA analysts say the other 493 S&P 500 component stocks that don’t include the seven mega-caps will see an uptick, while the seven mega-caps will slow down, which could be the beginning of a broader growth trend.

They expect S&P 500 earnings to grow 10% in the second quarter, while the index will grow 6% excluding the seven mega-caps, which is the first positive growth since Q4 2022.

Overall, analysts say the index component stocks’ second-quarter EPS “usually outpace by 2%”. 2% will be in line with historical averages, but it will be the smallest quarterly EPS growth since Q4 2022.

The seven mega-cap companies’ earnings growth may slow for the second consecutive quarter

According to LPL Financial, the seven mega-cap companies have driven the earnings growth of the S&P 500 in the past three quarters, accounting for more than half of the index’s total return (59.5%) in the first half of 2024. However, analysts expect the group to slow earnings growth for the second consecutive quarter.

While the slowdown in the seven mega-cap companies may be offset by the growth of the remaining 493 companies, the weak earnings of the seven mega-caps may raise questions about the end of their strong growth period.

The enthusiasm for artificial intelligence (AI) has driven the strong performance of the seven mega-cap companies in recent quarters, but some experts worry that investors’ expectations are so high that these companies may not be able to meet them.

Since the beginning of 2024, Nvidia, Meta, Alphabet, Amazon, Microsoft and Apple have all outperformed the S&P 500. Tesla is the only mega-cap company that has lagged the index, with its recent stock price rebound wiping out its first-quarter loss and only gaining 6.6%.