(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.) By Sebastian Pellejero NEW YORK, Nov 21 (Reuters Breakingviews) - Corporate America keeps earning more with less. Members of the S&P 500 Index <.SPX> are on track for their fourth consecutive quarter of double-digit profit growth, with a collective 13% rise in net income on sales growth of just 7%. Persistent inflation and tariff pressures suggest both the gains from the Magnificent 7 and the other 493 alike reflect genuine strides in efficiency. Stretched valuations, however, put greater pressure on staying lean. Earnings growth during the three-month stretch through September was unevenly distributed, but broadened. The Big Tech septet, including chipmaker Nvidia and web search giant Alphabet , generated 18% earnings growth, outpacing the rest at 12%, according to FactSet data. A larger share of the unmagnificent set exceeded Wall Street expectations while net profit margins, excluding financial institutions, reached a fresh high of about 13%, Bank of America analysts calculated. Companies such as Delta Air Lines and glass manufacturer Corning are among those whose productivity was on display. Fourth-quarter signals were nevertheless sober. More companies tracked by the benchmark index warned of weaker earnings than promised strong performance, per FactSet. With the U.S. unemployment rate rising, inflation sticky and tariffs high, chief executives anticipate merely holding the line. Exceptions are those in artificial intelligence, where exuberance remains largely unfazed. Whether prices properly reflect the mix of caution and spirits is another question. The S&P 500 trades at 22 times next year's earnings, a justifiably rich multiple. If profit growth achieves the 14% rate that analysts anticipate, the valuation compresses to a more reasonable 19 times, only slightly higher than its 10-year average. The math only works, however, if profitability retains its record level or sales growth reaccelerates. There is a credible path for margins to stay elevated: disinflation in energy and freight costs, lower borrowing costs, and AI applications lifting productivity in more pockets of the economy. Import levies also threaten to reinflate costs and repel shoppers. And if large language models turn out to be slower or smaller than expected, valuations will suffer accordingly. Without the Magnificent Seven, and also excluding $1.2 trillion Tesla and its outlying 220 times estimated 2026 earnings, the bulk of the index trades at roughly 18 times, Breakingviews calculates. If their combined net margin slips back to its historical average, the multiple would jump to at least 20 times. At that point, neither performance nor valuation will be optimized. Follow Sebastian Pellejero on LinkedIn. CONTEXT NEWS The S&P 500 Index is down about 3% in the month through November 20 and up 11% since the start of 2025. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The S&P 493 are expected to pull their weight https://www.reuters.com/graphics/BRV-BRV/zdpxjnqxgpx/chart.png ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Jeffrey Goldfarb; Production by Pranav Kiran) ((For previous columns by the author, Reuters customers can click on mailto:Sebastian.Pellejero@thomsonreuters.com)) Keywords: USA STOCKS/BREAKINGVIEWS
