Only 6% of S&P 500 companies are losing

Amid strong consumer demand and the resilience of the US economy, only a fraction of America's largest companies are losing money this year, according to an analysis by visualcapitalist.com.

It shows that, in 2024, companies in the S&P 500 stock index are expected to record annual earnings growth of 9.5%, above the ten-year average of 8%.

Overall, corporate profits have increased by almost 70% since 2020, with large technology companies investing in artificial intelligence (AI) leading the way. But beyond corporate giants, profitability is not as widespread, given the riskier nature of small and mid-sized companies, the source notes.

While the vast majority of S&P 500 companies are set to post earnings in 2024, profit growth is being led by a handful of tech giants.

In 2024, the seven largest U.S. tech companies (the Magnificent Seven) - Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla - are expected to generate 62% of the earnings growth in the entire S&P 500 index, with Nvidia accounting for 13% of the total. That trend is expected to continue over the next few years, but at a slower pace, amid increasing competition from new players and higher infrastructure costs.

As of September 2024, only 6% of the S&P 500 was loss-making, while 94% was profitable. In the Russell Midcap index, which includes mid-cap companies, the share of companies with negative results was 14%, due to the high volume of debt. In this index, the share of profitable companies is 86%.

Over the past decade, mid-cap stocks have lagged behind large-cap stocks, largely due to the performance of the technology sector. However, the growth of earnings per share for mid-cap companies has been faster, as many are developing innovative technologies.

In addition, monetary easing and corporate tax cuts proposed by President-elect Donald Trump could have a positive effect on small and medium-sized companies, due to lower borrowing costs.

While small-cap stocks have performed impressively this year, the share of unprofitable companies is considerably high, at 42%, in the Russell 2000 index. Profitable companies in the Russell 2000 are 58%, according to Apollo data. Two decades ago, the share of loss-making companies in the Russell 2000 index was only 14%. Like mid-cap stocks, they have underperformed large-cap stocks since 2014, but investors' increased risk appetite could lead to gains in the future.