US earnings: the 493 are forecast to outgrow the Magnificent Seven

Sell-side consensus expects the Magnificent Seven to deliver earnings per share growth of 4.9 per cent in 2027. It expects 16.6 per cent from the other 493 companies in the S&P 500.

For most of the past three years that ratio ran the other way, which is why so many Australian global equity allocations ended up shaped like the index rather than the opportunity set.

Jeffrey Schulze, head of economic and market strategy at ClearBridge Investments, reads the reversal as the arrival of something wider than an AI trade.

“The firm economic backdrop, anchored by a strengthening industrial cycle, a stable labour market and a resilient consumer, supports the case for broader earnings leadership through the second half of 2026 and into next year,” Schulze says.

The capex cycle

The clearest evidence Schulze points to comes from companies that move boxes and make components rather than chips. Old Dominion Freight Line told the market it was “encouraged by the continued improvement in demand”, and Illinois Tool Works called its growth “pretty broad-based”.

“Corporate commentary from key industrial bellwethers suggests a broader capex cycle is finally underway,” Schulze says.

Hard data supports those accounts, with orders and shipments of non-defence capital goods excluding aircraft growing at a double-digit pace. Data centres explain part of that, though Schulze argues industrials draw on AI buildouts while finding growth elsewhere too.

That difference carries weight for portfolio construction. An industrial recovery driven purely by hyperscaler capex inherits the same single point of failure as the technology trade. One drawing on restocking, reshoring and ordinary business investment gives advisers something closer to real diversification.

The consumer

US households are the obvious threat to the argument. Support from the One Big Beautiful Bill fades from here, and heavier-than-expected cuts to social safety-net programmes ramp up into year-end.

Real consumption grew at a 3.2 per cent annualised pace in the most recent quarter, helped by larger tax refunds and lower withholdings. ClearBridge expects that to slow to 2 per cent across the second half, with easing inflation and stable wages carrying household budgets through.

“We do not see material signs of a shift in consumer spending at this point,” Schulze says, pointing to high-frequency data such as credit card spending.

Energy prices had looked like the pressure point until WTI and Brent both traded back below US$80 in August. Schulze’s argument there is structural, because changes in US energy independence, and in how much energy consumers use, soften the economic damage when oil moves.

“The underlying resilience of the US consumer should not be disregarded.”

Testing the thesis

Forecasts for 2027 are the weakest link in the chain. Analysts habitually cut their numbers as a quarter runs down, and FactSet puts the average decline in bottom-up S&P 500 EPS estimates at 3.0 per cent over five years. Stretch that habit across five quarters and the S&P 493’s 16.6 per cent has a long way to fall before it meets the Magnificent Seven’s 4.9 per cent.

The rotation is also partly paid for. Broadening calls misfired badly through 2024, when the Magnificent Seven produced 53.7 per cent of the index’s total return on 30.6 per cent of its weight. The call came good through 2025, when non-Mag 7 stocks generated 59 per cent of the S&P 500’s return over the first nine months. The equal-weight index ran 13.1 per cent higher that year against 8.5 per cent for the cap-weighted version, and equal weight has held the lead since.

Advisers acting on Schulze’s argument today are buying a trade that started more than a year ago. Schulze concedes the market may still be working through its recent gains, though he holds to the direction of travel.

“We believe the path of least resistance for equities is higher in the second half of the year with earnings continuing to power the way,” he says.

The local read

Schulze frames the payoff in terms of active management. Managers who can handle the concentration built into the S&P 500 get an opportunity they have lacked since 2022.

The decision in front of advisers comes earlier than manager selection. Many practices built their global equity exposure through 2023 and 2024 around a market where seven companies carried the return.

Passive core holdings, growth-tilted satellites and thematic technology sleeves all lean the same way. Those books have spent a year behind an equal-weight benchmark, and clients rarely notice because the headline index number keeps looking familiar.

Advisers do not need to take a view on 2027 to act on this. Earnings revisions arrive monthly and they are public, and they will show whether the S&P 493 is closing on its forecast or falling away. The practices reading them through the December quarter will know what their global sleeve is built for long before the returns make the point.