Morgan Stanley: US earnings growth broadening beyond Big Tech — equal-weight S&P 500 outperforms cap-weight for first time since 2022
TL;DR
Morgan Stanley: US earnings growth broadening beyond tech giants — S&P 1500 median EPS growth >10%, equal-weight S&P 500 outperforming cap-weighted for the first time since 2022.
Morgan Stanley reports that US stocks beyond the tech giants are set to report strong earnings this quarter, broadening the market rally. Median EPS growth for S&P 1500 components tops 10%, the best since the pandemic recovery, with analysts also lifting profit expectations for consumer discretionary and transportation.
Q2 earnings season kicks off Tuesday with the big banks. Analysts forecast S&P 500 profits will grow 23% YoY — one of the best readings outside recession recoveries. The more critical signal: the equal-weighted S&P 500 has outperformed the cap-weighted index for the first time since 2022, reflecting rising momentum in non-tech stocks.
The signal has two readings. The bull case is rotation: three years of AI narrative kept money glued to the Magnificent 7, and other sectors are now catching up — a healthy broadening. The bear case is that this is often a top signal — historical "everything rallies together" points frequently mark late-cycle regimes when money finds no better home and chases cyclicals. Late 1999, mid 2007, and Q1 2021 all showed similar broadening, followed by a market top within 12 months.
Morgan Stanley's stance leans bullish: the report specifically highlights lifted profit expectations in consumer discretionary and transportation as "real demand" signals. But the release timing sits one week before the July Fed meeting — if Powell holds without a cut again, the cyclical-upside thesis takes damage.
Win the bet, and Q2 non-tech earnings really do beat, equal-weight keeps outperforming, AI valuation concentration dissolves naturally, and the market broadens into a full-blown bull run. Lose it, and this broadening turns out to be the last liquidity chase, Q3 delivers earnings misses plus a rate-cut disappointment, and the equal-weight index tops in August before rolling over.
via Bloomberg
Q2 earnings season kicks off Tuesday with the big banks. Analysts forecast S&P 500 profits will grow 23% YoY — one of the best readings outside recession recoveries. The more critical signal: the equal-weighted S&P 500 has outperformed the cap-weighted index for the first time since 2022, reflecting rising momentum in non-tech stocks.
The signal has two readings. The bull case is rotation: three years of AI narrative kept money glued to the Magnificent 7, and other sectors are now catching up — a healthy broadening. The bear case is that this is often a top signal — historical "everything rallies together" points frequently mark late-cycle regimes when money finds no better home and chases cyclicals. Late 1999, mid 2007, and Q1 2021 all showed similar broadening, followed by a market top within 12 months.
Morgan Stanley's stance leans bullish: the report specifically highlights lifted profit expectations in consumer discretionary and transportation as "real demand" signals. But the release timing sits one week before the July Fed meeting — if Powell holds without a cut again, the cyclical-upside thesis takes damage.
Win the bet, and Q2 non-tech earnings really do beat, equal-weight keeps outperforming, AI valuation concentration dissolves naturally, and the market broadens into a full-blown bull run. Lose it, and this broadening turns out to be the last liquidity chase, Q3 delivers earnings misses plus a rate-cut disappointment, and the equal-weight index tops in August before rolling over.
via Bloomberg
