The earnings growth premium earned by the biggest stocks within the S&P 500 (SP500) is expected to narrow through 2026, said Tony Pasquariello, global head of hedge fund coverage and global markets division at Goldman Sachs, in a markets/macro note.

In 2023, the annual earnings growth by the five biggest stocks -- (MSFT), (NVDA), (AMZN), (GOOGL), and (META) -- was 57%, and the S&P 500 (SP500) median was 4%.

The estimated annual earnings growth for this year for the big five stocks is 37%, while the S&P 500 (SP500) median is 6%.

For 2025, the estimate is 19% for the big stocks and 11% for the median S&P.

And for 2026, it is estimated that the big five stocks will yield an annual earnings growth of 13% while the S&P 500 (SP500) median will be 9%.

As of the end of the first half of the year, the S&P 500 returned 15%.

“If you take out Nvidia (NVDA), that drops to 10%; if you strip out the entire Magnificent Seven, that drops to 6%,” said Pasquariello. “Viewed one way, that’s a very top heavy market. Viewed another way, 6% in six months is a perfectly acceptable return (in fact, it annualizes to the average long-term return of S&P).”