Magnificent Expectations
Strong stock returns often reflect companies exceeding expectations. With higher forecasts for the Magnificent 7 in 2026, outperforming may be harder.
Market prices reflect what investors expect to happen in the future. When a group of stocks delivers returns far above the broad stock market, it’s likely these companies surprised investors in a good way.
This principle is challenging to uncover in the data because the market’s expectations are hard to quantify, even with the benefit of hindsight. Sure, we can compare a company’s reported earnings against what was forecast by analysts. But there’s dispersion in analysts’ forecasts. And sometimes earnings reports are accompanied by messaging from the company about its future business that impacts prices. So, a company can beat its earnings forecast and still experience a price decline.
All that said, sometimes we see strong indicators of earnings surprises. Recent years for the Magnificent 7 stocks are a good example. From 2021 through 2025, aggregate earnings for these companies exceeded average beginning-of-year expectations in all but one year, 2022. Their stocks outpaced the broad market in all but one year. I bet you can guess which year they underperformed.
Obviously, we don’t yet have 2026 results. But forecasted earnings for the Mag 7 are even higher this year. That means a potentially higher bar these companies must clear such that they can deliver outsized returns.
EXHIBIT 1
Magnificent 7 Earnings vs. Beginning of Year Forecasts, 2021–2026
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