Disappointing second-quarter earnings from the "Magnificent Seven" stocks may have a silver lining. Investors can take heart from the rest of the S&P 500 index, Yardeni Research said on Wednesday.
While Mag 7 earnings growth slowed for a second straight quarter, their index stablemates fared far better, Ed Yardeni and his team said. In fact, those that have reported did something they haven't since 2022.
"The S&P 493's earnings growth rate turned positive in Q2 as it improved for a fourth straight quarter to an eight-quarter high of 7.6%," Yardeni wrote in a note to clients.
"That's up from zero or declining year-over-year growth in the prior six quarters from Q4 2022 to Q1 2024," he added.
Magnificent Seven Stocks Decelerating
In contrast, six of the Magnificent Seven megacap titans — Alphabet, Amazon, Apple, Meta, Microsoft and Tesla — posted a blended Q2 earnings growth rate of 34.9%, Yardeni Research calculated. That was down from 51.4% in Q1 and 57.1% in Q4 2023, which was the highest earnings growth rate for this group in 10 quarters.
Only one of the Mag 7 stocks — Nvidia — has yet to report for Q2. The artificial intelligence leader is set to report on Aug. 28 after the market close.
'S&P 493' Earnings Winners
Several "less magnificent" S&P 500 stocks jumped more than 20% in the past month after their earnings reports. Those stocks include Mohawk Industries, D.R. Horton, VF Corp., Newell Brands, CBRE Group, 3M, Match Group and Stanley Black & Decker.
Among them, 3M and Stanley Black & Decker staged earnings breakaway gaps. But most of the stocks have come under pressure during the recent market volatility.
It's not a straight line up from here. Analysts expect the S&P 493's earnings growth rate to dip to 3.8% in Q3 and rebound to 12.9% in Q4. "These figures bear watching in order to determine the health of the "less magnificent" companies of the S&P 500," Yardeni wrote.
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Among the Magnificent Seven stocks, Nvidia stock tanked 5.1% and Apple gained 1.1%. Among the "S&P 493" stocks, Axon Enterprise soared 18.4% on earnings to top a 329.87 buy point.
As of Aug. 7, 430 companies in the S&P 500 have reported Q2 earnings. Among those who have reported, 78.4% beat expectations and 16.3% missed, according to the LSEG I/B/E/S Earnings Scorecard. In a typical quarter, 67% of companies beat estimates and 20% miss, the scorecard said.
For the S&P 500 index as a whole, the Q2 blended earnings growth rate improved to 10.2% from 6.6% in Q1, Yardeni said. Analysts expect S&P 500 earnings to grow 6.8% in Q3 and 13.4% in Q4, he added.
