Jefferies: Earnings growth for the rest of the S&P 500 is expected to outpace the Magnificent Seven in the third quarter

How is earnings growth broadening beyond the Magnificent Seven?

Jefferies expects adjusted earnings per share for S&P 500 companies outside the Magnificent Seven to rise 32.1% year over year in the third quarter, above the seven’s 21.4%.
The pattern is reversed for revenue growth: the Magnificent Seven are expected to grow 22.8% year over year, compared with 11.0% for the remaining companies. Thus, a broader group leading earnings growth does not mean the seven have lost their revenue growth advantage.
Combining actual results from companies that have reported with forecasts for the rest, third-quarter adjusted earnings per share for the S&P 500 are expected to rise 29.3%, while earnings calculated under US accounting standards are expected to rise 32.0%; technology, semiconductors, communication services and energy are the main drivers.

As of 23 October, about a quarter of S&P 500 companies had reported third-quarter results. Based on the standardized earnings surprise measure used by Jefferies, about 73% of companies beat earnings expectations and about 41% beat revenue expectations.
Earnings at companies that have reported rose 32% year over year, 5.5 percentage points above the market consensus; revenue rose about 12% year over year, 1.4 percentage points above expectations.
The companies reporting so far are mainly from the financial and industrial sectors, both of which exceeded expectations: financial sector earnings grew 10.8%, more than 5 percentage points above expectations; industrial sector earnings grew 21%, about 9 percentage points above expectations.

Companies that beat earnings expectations rose an average of 1.1% on the first day after reporting, outperforming the S&P 500 index by 1.4 percentage points; companies that met expectations fell an average of 1.9%, underperforming the index by 1.5 percentage points.
The small number of companies that missed earnings expectations still outperformed the index by an average of 0.5 percentage points on the first day, indicating that market reactions so far have not been determined solely by whether earnings beat expectations.
The report expects about 64% of S&P 500 companies to report over the next two weeks, including most technology companies and members of the Magnificent Seven; these results will substantially expand the current sample.

More companies are citing specific efficiency gains from AI, including faster workflows, automated handling of routine tasks, expanded service capacity and improved cost control.
Companies continue to increase AI spending through additional investment or by reallocating existing budgets, but future budget sizes and ultimate returns remain uncertain.
Rising costs continue to squeeze margins and earnings; price increases at some companies supported reported revenue, but there are also signs that consumers are spending less or shifting to cheaper products.