Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

U.S. and world stocks rose on Thursday, boosted by a cooling in U.S.-China trade tensions, while oil prices rocketed 5% after Washington sanctioned two Russian oil giants, raising concern about global supply.  

More on that below. In my column today, I look at whether the 'Magnificent 7' may be about to relinquish its total dominance on Wall Street, even if just a little. The current earnings season and earnings outlook for 2026 suggest it might. 

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* China's 5-year plan

 China's Communist Party rulers just concluded their four-day closed door 'plenum' meeting to lay out their economic plan for the next five years. It looks like the focus will be on building a modern industrial system and ensuring technological self-reliance, as the country's rivalry with the US intensifies.

This is unsurprising, given that China and the US are essentially in a technical arms race, at the center of which are the rare earths, microchips, and computing power and know-how that will power their respective economies and militaries. 

* US-China-Russia dance heats up

 The US has imposed sanctions on Russian top oil companies, citing Vladmir Putin's "refusal to end this senseless war" with Ukraine. It was the first such move by President Trump in his second term. One might ask why he hadn't done so before. 

Sources then told Reuters that Chinese state oil majors have suspended purchases of Russian oil due to the sanctions. China has been the biggest buyer of Russian crude, so this is an interesting twist coming, as it does, as US-China trade tensions are boiling up ahead of next week's Trump-Xi meeting.

* Casting an eye on U.S. CPI

U.S. consumer price inflation data for September will be published on Friday, a rare release of official U.S. economic data with the government shutdown - now the second-longest on record - about to enter its 24th day. 

So it's a big moment. Or is it? Barring a shock number significantly above forecast - which is 3.1% for annual core and headline - it's hard to see fully priced market expectations of a 25 bps rate cut next week and again in December moving much. One suspects Fed thinking is the same.

Could U.S. stock market leadership finally broaden beyond the U.S. tech megacaps? Early signs from the third quarter earnings season – particularly 2026 outlooks – suggest there's a good chance. 

   The 'Magnificent Seven' – Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla – have long dominated the S&P 500, in terms of profits, market cap and price momentum.

But that grip may be loosening, at least a little.

Tajinder Dhillon, senior research analyst at LSEG Data & Analytics, estimates Mag 7 earnings growth for the third quarter will be 16.6%, still comfortably outstripping the aggregate index's expected 9.2%. But that spread of 7.4 percentage points is the narrowest since the fourth quarter of 2022, nearly three years ago.

In a similar vein, Jeff Schulze, head of strategy at ClearBridge Investments, estimates that the earnings growth gap between the Mag 7 and the S&P 493 in this calendar year will shrink to 14 percentage points from 34 percentage points last year, before contracting even further next year to less than five percentage points.

Indeed, Schulze reckons the S&P 1000 index of small- and medium-cap stocks will post higher earnings growth than the Mag 7 next year, marking a remarkable turnaround from recent years.

"Should the Mag 7's growth advantage dissipate, market leadership could rotate towards the less expensively priced laggards," Schulze says, adding that third quarter results so far have been "encouraging" in this regard.

Schulze argues that incoming monetary and fiscal stimulus will benefit a broader mix of companies next year, with cyclical sectors like industrials and consumer discretionary particularly well positioned.