Why consensus earnings for America’s largest companies run into the size of the economy
Key points
- Consensus asks corporate profit to absorb about 55% of all the growth the US economy can produce between 2026 and 2028. Historically the median is under 9%.
- The largest companies are now too big to outgrow the economy. Earning roughly a quarter of all US corporate profit, the Magnificent Seven can no longer grow by taking share from a larger market. Their growth has become a claim on the economy itself.
- Profits have to be paid for by someone. Every dollar of profit is funded by business investment, household dissaving, government deficits, foreign demand or dividends. To meet the forecast, each of these would have to move beyond anything in the post-war record.
- Our base case is convergence, not collapse. We expect Mag 7 revenue growth to drift toward nominal GDP growth, and the depreciation of the current build to absorb much of what remains. Profits may not grow at all.