In the third quarter of 2024 earnings for those seven stocks rose 18 percent year over year, compared with just 2 percent growth among the other 493 companies in the index, according to data from American Century Investments.

Jonathan Bauman and Bernard Chua, vice presidents and senior client portfolio managers at the firm, emphasized that these seven stocks accounted for almost all of the earnings growth in the first three quarters of 2024.

“However, the revenue gap may start to narrow as forecast for the remainder of 2024.” and the first two quarters of 2025,” they said.

The pair noted that the trailing 12-month price-to-earnings ratios of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla deviated upward from the rest of the index a decade ago and have remained high ever since.

However, the relative valuations of these companies are now below their 2020 peaks, while the valuations of non-Magnificent Seven companies are much closer to the historical average of the S&P 500 as a whole.

Forecasts and market trends

American Century cited analyst forecasts for S&P 500 earnings to grow 11.8% in the fourth quarter of 2024, with U.S. earnings expected to rise roughly 9% for the 2024 calendar year. and 15% in 2025.

However, US policy on tariffs, taxes and government spending could affect those forecasts, the manager noted.

It also identified several trends impacting revenue growth, including continued demand for AI infrastructure, driven by large cloud computing providers advancing their AI initiatives.

The hyperscalers — Microsoft, Amazon, Alphabet and Meta — which account for roughly 22 percent of the S&P 500's total capex spending, are projected to spend $205 billion this year, a 46 percent increase over 2023.

In contrast, other S&P 500 companies are not expected to increase their capex spending, according to the data.

The firm explained that many companies that halted or delayed their spending decisions in the short term cited uncertainty over the outcome of the US election earlier this year as one of the reasons.

Changes in consumer spending

Despite posting a 16th straight quarter of revenue growth, U.S. consumer-facing companies have begun to report changes in spending habits as low-income consumers come under greater pressure.

"We also saw further signs that higher-income consumers are trading down," American Century portfolio managers said.

The firm notes that Walmart, for example, earned 75 percent of its market share growth from households earning over $100,000.

"Many consumers may be fed up with higher prices and are choosing cheaper private label products or restaurants where they feel they are getting better value."

Meanwhile, markets outside the US also face challenges.

America Century pointed out that Richemont, the owner of Cartier and Piaget, missed analysts' expectations due to weaker demand from China.

Similarly, European carmakers have struggled with weakness in global demand, leading to restructuring and job cuts.

In addition, Japan's auto and auto parts sector was also under pressure, with company results generally attributed to weak US demand and rising stimulus spending.

The fund manager forecast a mixed outlook for developed markets outside the US, with earnings in Europe likely to grow 4.2% in the fourth quarter and slow to 2.7% in the first quarter of 2025.

Japan, meanwhile, may experience slightly negative growth for the quarter.