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The S&P 500 is up 17% so far this year.

But as investors have heard time and again, this performance can be largely attributed to just a handful of stocks tracking one theme — the Magnificent Seven and AI. As of late June, for instance, Nvidia (NVDA) alone had accounted for more than a third of the S&P 500's gains this year.

For the other 493 stocks in the benchmark index, both earnings growth and shareholder returns have been more measured. In fact, as the team at Bank of America pointed out in a note on Tuesday, these remaining members of the S&P 500 have been in an earnings recession since the beginning of last year.

According to data from BofA's US equity strategy team, earnings for the S&P 493 haven't registered year-over-year growth since the fourth quarter of 2022.

After an annual drop of 2% in the first quarter of '23 and a 7% annual decline in the second quarter of last year, earnings growth has been flat for this group in each of the last three quarters, the firm's work shows.

The upcoming second quarter earnings period, however, should mark the end of what's been a stealth earnings recession for the vast majority of companies in the S&P 500. For the 493 non-Mag 7 stocks, earnings growth is forecast to clock in at 6%, 7%, and 13% annually over the second, third, and fourth quarters of 2024.

Now, this growth is still expected to lag the index's overall earnings growth, as the lion's share of this profit growth will be generated by the Technology (XLK) and Communications Services (XLC) sectors, which house AI beneficiaries like Nvidia, Microsoft (MSFT), Meta (META), and Alphabet (GOOGL, GOOG). (Health Care, notably, is also set to see earnings rise by double digits in each of the next three quarters, though BofA cautions these are driven by one-time items rolling off the books for Pfizer (PFE) and Merck (MRK).)

Some on Wall Street have grown dismayed by the bifurcated performance between the haves (AI names) and have-nots (everyone else) in the S&P 500. But we think these numbers help us understand how we got here and where we're headed.

When 2024 began, one of the consensus views on Wall Street was that the market rally would broaden out after a 2023 surge defined by the AI theme. To date, this trade has not been a feature of this market. The fundamentals — i.e., earnings growth — help explain why.