Investors brace for earnings from ‘Magnificent Seven’ US growth giants

A handful of massive growth and technology names that have dominated the U.S. stock market in 2023 are set to report earnings in coming weeks, potentially determining the path for this year’s equity rally.

Lately dubbed the “Magnificent Seven” by investors, shares of the U.S. companies with the biggest market values soared between 40% and over 200% so far this year. Those moves have accounted for a lion’s share of the S&P 500’s 17% year-to-date rise and propelled the index to its highest level since April 2022.

The outsized gains have come with big earnings expectations for the seven companies: Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta Platforms. BofA Global Research projects they will increase earnings by an average of 19% over the next 12 months, more than double the an 8% estimated rise for the rest of the S&P 500.

They will need strong results to justify premium valuations. Those companies trade at an overall trailing price-to-earnings ratio of about 40 times, versus 15 times for the S&P 500 excluding those companies, according to BofA.

Their results may be crucial to the market as a whole. Fueled by their recent gains, megacap stocks have climbed to dominate benchmark indexes, causing headaches for some managers of active funds. In the S&P 500, the seven stocks comprise 27.9% of the index’s weight.

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