Earnings growth in US spreading out beyond tech mega-caps

Profit growth of large-cap firms slowing as smaller names start to hit their stride

As another quarterly earnings season from corporate America enters its final stretch, this much is clear: The long-awaited recovery in the companies that were left out of the artificial intelligence (AI) frenzy has finally begun.

Signs of the turnaround are unmissable. For several quarters, profit growth in the seven biggest technology companies was driving gains for the S&P 500 index. That is about to change, as the rest of the stocks in the benchmark, excluding the so-called "Magnificent Seven", are on pace to deliver their first profit growth since the fourth quarter of 2022, data compiled by Bloomberg Intelligence (BI) shows.

"This broader earnings strength is a positive as it provides portfolio managers more opportunities beyond just a few stocks, and provides a more balanced market," said Mr Keith Lerner, co-chief investment officer at Truist Advisory Services.

Though more than 80 per cent of the S&P 500 members have already reported their results, major bellwethers for the health of US consumers - such as Home Depot, Walmart and Target - have not yet announced their numbers.

The clues they reveal about consumer spending will be closely watched as traders remain jittery about the possibility of an economic slowdown. Also, Nvidia, which is arguably the most important stock for investors interested in AI, is scheduled to report earnings later in August.

The biggest takeaway so far has been slowing profit growth of large-cap companies, as smaller names started to hit their stride.