Despite the decline in large tech stocks, the seemingly unstoppable U.S. stock market continues to rise, with gains spreading to sectors such as real estate that have struggled in the first half of this year.

However, corporate profits are not following suit. This raises the question of how long the breadth of this rally can be sustained. Matt Maley, Chief Market Strategist at Miller Tabak + Co., said, "In terms of the stock market's trajectory, the rebound may broaden, but based on overall earnings, the rebound will not broaden."

Earnings for S&P 500 constituent companies are expected to grow by 4.3% compared to the same period last year. However, according to data, excluding the so-called seven tech giants—Alphabet (GOOGL.US), Amazon (AMZN.US), Apple (AAPL.US), Meta (META.US), Microsoft (MSFT.US), Nvidia (NVDA.US), and Tesla (TSLA.US)—profit expectations are for zero growth. If the broader technology and communications sectors are excluded, the expected increase turns into negative growth.

This outlook indicates how much U.S. businesses still rely on the "tech profit machine"; it also illustrates the increasing pressure on other industries to fill at least part of the void.

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Scott Chronert, Head of U.S. Equity Strategy Research at Citi, said, "The strongest earnings growth still comes from technology and communications services, as well as some non-essential consumer goods sectors. We need continued confidence in the earnings growth of 'growth' sectors and continued improvement in other industry trends."

But looking at the stock market performance, it's as if investors believe other stock sectors have already reported strong results. Although large tech companies drove the S&P 500 higher in the first half of the year, pushing its market valuation to a record high, the situation changed in the third quarter as other industries outperformed growth giants.

In the third quarter of this year, the Bloomberg Magnificent Index lagged behind the S&P 500 equal-weight index for the first time since 2022. In the S&P 500 equal-weight index, each stock has the same weight regardless of the company's market value. In the S&P 500, the utilities, real estate, and financial sectors have been dominant since early July, while the information technology and communications services sectors have seen little growth.

Tech stocks are expected to drive profit growth, but earnings reports show a different picture, with technology and telecommunications still being the main drivers of growth. Wall Street analysts predict that the "Magnificent Seven" will see a profit increase of more than 18% year-over-year in the third quarter. This increase is a significant drop compared to the 37% year-over-year increase in the second quarter, but it still leads the S&P 500, with other constituent stocks expected to remain essentially flat. In fact, according to compiled data, if the technology and telecommunications sectors are excluded, earnings growth for S&P 500 constituent companies is expected to decline.

Michael O'Rourke, Chief Market Strategist at Jonestrading Institutional, said, "Although the S&P 500 excluding the seven giants does not show earnings growth, its valuation appeal is much greater. The seven giants need to live up to high expectations to maintain their high valuations."In fact, information technology and communication services are the only sectors in the S&P 500 index that are expected to achieve double-digit percentage growth in earnings per share (EPS) for the third quarter. Data shows that the overall earnings per share growth for this sector is expected to be 4.3%, with the S&P 500 index's third-quarter EPS forecasted at $60.26, more than half of which is anticipated to come from the information technology industry.

Revenue is also on the rise. According to data, in this context, information technology is the only sector expected to achieve double-digit percentage growth in the third quarter. Data compiled by a business think tank indicates that the revenue growth rate for S&P 500 constituent companies is expected to be 5.1%, and 4.4% if technology stocks are excluded.

More importantly, the outlook for large technology companies is considered strong, which is of greatest interest to investors. Adam Parker, founder of Trivariate Research, stated: "The guidance from large technology companies is expected to be positive. If earnings expectations for these companies are raised after the third-quarter results are announced, it will be difficult for the S&P 500 index to fall further."

Nevertheless, forecasts for the entire market next year are still encouraging, as the Federal Reserve is expected to continue reducing borrowing costs, and the U.S. economy is also expected to continue growing. However, if other constituents of the S&P index still fail to achieve this goal, the question becomes how much these companies can continue to contribute to the rise in the stock market.

O'Rourke said: "In any case, the 'Magnificent Seven' should have better profit growth—they are high-quality companies, in many cases approaching a monopoly. The question for investors is how much of a premium they should receive relative to other stocks in the market, and whether this premium will expose them to the risk of disappointment. On the other hand, as the Federal Reserve enters a period of easing, the S&P 500 index (excluding the seven giants) should be prepared for a recovery in profit growth."