By Martin Baccardax
Megacap tech stocks are likely to continue dominating the pace and direction of the S&P 500 next year, according to data from Goldman Sachs, even as investors bet on broader participation from companies outside of the cohort as the economy remains surprisingly resilient.
The so-called Magnificent Seven tech stocks, which includes Tesla, have accounted for around 43% of the S&P 500's advance into the end of November, based on data from S&P Dow Jones senior index analyst Howard Silverblatt.
That influence is fading somewhat, however, amid questions over the sustainability of artificial intelligence spending and the slow adoption of new technologies in the broader economy. High levels of debt, narrowing profit margins, and concerns tied to circular financing arrangements among the sector's biggest players have also blunted performance over the final weeks of the year.
Goldman Sachs still sees the biggest tech stocks driving nearly half of S&P 500 earnings growth next year, but also expects improvements in the contribution from the s0-called "other 493" members of the benchmark.
Substituting chip maker Broadcom for Tesla in its forecasts, Goldman sees collective earnings for top 7 stocks, which includes Apple, Nvidia, Microsoft, Google, Amazon and Meta Platforms, rising by 23% next year, compared to an 11% advance for the remaining 493.
That would take overall index earnings to around $305 a share, the bank indicated, suggesting a 12% advance from current levels. Goldman's S&P 500 price target for the end of 2026 was pegged at 7600 points, implying a 10.3% gain from Thursday's record close.
However, the bank sees notably better earnings growth from a host of sectors outside of tech next year, including industrials, materials, and utilities as the economy continues to expand. That's also a view shared by a growing number of analysts on Wall Street.
In fact, the Fed lifted its near term projections for GDP growth on Wednesday, forecasting a 2.3% advance in 2026 while keeping its outlook for headline unemployment unchanged at 4.4%.
"As more companies adopt AI, participation should broaden and sectors beyond the Magnificent Seven may start to show strength," said Gina Bolvin, president of Bolvin Wealth Management Group in Boston.
A portion of that forecast is already evident in the recent outperformance of sectors such as healthcare, consumer staples, energy, and materials over the past month.
Each has firmly outpaced gains for the broader S&P 500 as well as the information technology subset, which includes Nvidia, Apple, Microsoft and Broadcom.
Eric Teal, CIO for Comerica Wealth Management in Charlotte, thinks the slow separation from big tech dominance is only just beginning.
"Traditional value sectors like financials and healthcare have been our areas of focus as a steeper yield curve and attractive valuations make them ripe to lead during a period of sector rotation," he said.
Chris Zaccarelli, CIO for Northlight Asset Management, agrees.
"The key to the bull market continuing is the rest of the market (the so- called 493) rising even without the help of the Magnificent Seven," he said.
"If the baton can be passed and the rally can broaden out then we wouldn't be surprised to see a rally into year end and into the beginning of next year."
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 12, 2025 07:29 ET (12:29 GMT)
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