Beginners Series Webinar: Join us on Monday, December 15th at 2 PM (ET) for our NDW Beginners Series Webinar. The week's topic is: Navigating the Model's Page Register Here

In today’s research piece, we set out to examine the relationship between risk and return for the S&P 500 over time, aiming to answer one key question: Has investing in the S&P 500 been worthwhile given a specific level of risk? To address this, we utilized the Sharpe Ratio (SR). This metric is calculated by subtracting the risk-free rate (proxied by the 10-year Treasury yield) from the market’s average return over a given period, then dividing by the standard deviation of excess returns. For our analysis, we used six months of daily data (126 trading days) and applied a 30-day moving average to smooth fluctuations and highlight underlying trends. Conceptually, a higher SR indicates better compensation for risk taken, while a lower SR suggests more risk for less reward.

Our study focused on how the SR has evolved since 2000. As shown below, the Dot-Com Bubble marked the lowest reading, with an SR near -2. The Great Financial Crisis (GFC) also produced a depressed SR, hovering around -1.8 in early 2009. Fast forward to 2025, and the SR is near record highs, underscoring exceptionally strong risk-adjusted returns this year.

Zooming in on recent months, the trend becomes clearer. During Liberation Day in April, the SR dipped to roughly -0.65. However, starting in July, the SR climbed steadily, peaking at around 3.0 in the month of November. In the past few weeks, the ratio has begun to decline from its highs, signaling a moderation in risk-adjusted performance. The natural question at this point is, should we consider lowering our allocation into large-cap domestic equities? The answer to that question is still a strong no! For starters, the Sharpe Ratio is still above 2.0, meaning that it is still in exceptionally strong levels right now. Additionally, large-cap growth is still the strongest group in DALI when looking at the different style factors.

Lastly, when looking at the SPDR S&P 500 ETF Trust (SPY), the fund still maintains a strong fund score of 5.19 and has been on a positive trend since 2022. When looking at the 5-point scale for the fund’s chart, you can see that the fund completed 4 consecutive buy signals after coming off the April bottom. Although the fund completed a double bottom break last month, SPY did reverse back into a buy signal last week after completing a double top break at $685. Long exposure can be considered here. Initial strong support is at $655, with additional support at $620. Maintain your current exposure to large-cap domestic equities, but monitor closely for signs of sustained weakness and be ready to adjust if conditions deteriorate.

With pretty much all of the S&P 500 (SPX) companies having released their 2025 Q3 earnings report, today we wanted to review how stocks behaved based on their technical rating. For instance, did stocks with a high technical attribute (TA) rating beat fundamental analyst estimates more frequently than low TA stocks? Did high TA stocks behave better on their earnings date compared to low TA stocks? Were there more technical upgrades in certain sectors compared to others?

Before answering these questions, we should first give a brief overview of our ratings for those unfamiliar. Note that we will often use the terms technical attribute, attribute, and rating interchangeably. If you are a veteran, go ahead and skip to the “High Attributes vs Low Attributes on Estimates” section.

For those still reading, every stock on our system is assigned a rating that ranges from 0 to 5. Stocks with an attribute of 2 or below are considered technically weak and consequently, carry a sell rating. Stocks with a 3 rating are considered a hold, and those with a 4 or 5 attribute are given buy and strong buy ratings, respectively. Our studies show that high rated stocks, which carry a 3 technical attribute or better, have historically outperformed stocks with low technical attribute ratings. Academics attribute this success to the momentum factor. It is a weird phenomenon, but it is as simple as stocks that have gone up the most in the past tend to keep going up the most in the future.

By no means did we discover momentum — we merely provide an objective and quantifiable means to access the factor via our technical attributes. These ratings were not built with the intention of chasing near-term alpha nor should they be heavily relied upon for short-term trading; however, closely rated stocks tend to behave similarly in certain seasons — one of them being earnings season.

High Attributes vs Low Attributes on Estimates

More stocks rated as a hold, buy, or strong buy (high technical attribute, 3+) heading into this earnings season beat fundamental analyst expectations compared to stocks rated as a sell (weak technical attribute, 2 or lower). In fact, 83% of high technical attribute stocks beat top line mean fundamental analyst estimates sourced by FactSet and 85% beat bottom line estimates. Conversely, just 69% of low attribute stocks beat top line estimates and 81% beat bottom line estimates.

The overall percentages/trends for the Q3 2025 earnings season were higher than historical norms again and mostly in line with last quarter’s metrics. As usual, more firms beat bottom line than top line across the board. There are a few hypotheses that could explain why beat rates are better for the bottom line compared to the top line, along with improved percentages for both high and low technical attribute names. Companies have numerous opportunities to manage their earnings per share via revenue recognition practices, depreciation/amortization decisions, funded statuses for pensions, changes in allowances/provisions for payments, etc. Many companies have also continued taking a cautious approach to earnings forecasts, suggesting the hurdle rates may have been conservative as firms have baked in tariff uncertainly, interest rate expectations, and other global concerns.

While market efficiency generally explains why beat rates are better for high attribute stocks compared to low attributes, there was an intriguing development for lower technical attribute names during Q3 earnings season. Top line beats for low technical attribute names fell from above 70% in Q2 to 69% in Q3, while bottom-line beats increased from 76% in Q2 to 81% in Q3. Overall, it suggests that a group of low technical attribute names missed revenue expectations but were able to meet or beat profit expectations. While there could be a variety of potential reasons for the notable difference in top and bottom-line beats for low technical attribute names, managing operating and input costs along with potential tampered expectations for Q3 earnings likely played a big role.

Technical Upgrades and Downgrades

Earnings season still brings surprises, often in the form of big share price reactions. After a large share price reaction, our technical attribute ratings can adjust — we call these changes in rating technical upgrades and technical downgrades. By our definition, a technical upgrade is when a stock gains an attribute — so a 1-rated stock moving up to a 2 would classify, just as a 4-attribute stock moving up to a 5 would classify. A technical downgrade is the opposite, so it counts whenever a stock loses an attribute rating.

It is important to recognize that just because a stock received a technical upgrade, it is not instantly a high attribute stock worth buying. Recall that a stock that was a 0 and became a 1 is classified as a technical upgrade. Also, note that the chart below does not show maintained ratings. So, a 5-attribute stock that had a positive earnings surprise is nowhere to be seen, just like a 0-attribute stock that may have experienced further downside. Nonetheless, interesting trends emerged. We pulled data as of December 5^th, 2025.

Sector Highlights:

• Like last quarter, Q3 saw a larger percentage of technical downgrades; meaning that stock prices fell to the extent of dropping in technical attribute ratings following earnings. Suggesting that while companies may have tampered expectations as far as what earnings reported, investors may have anticipated more in cases, or a message may not be perceived as positively as initially thought. While there may be other potential reasons, falling prices leading to a drop in technical attribute rating produced a notable change within sectors quarter over quarter.
• Five out of eleven sectors - nine out of eleven if considering ties – saw more technical downgrades than upgrades. Sectors with a high number of technical downgrades include Consumer Discretionary, Communication Services, and Financials. Quarter over quarter, Discretionary and Communication Services saw technical downgrades increase by 15% and 11% respectively. Among the three sectors the most notable technical downgrades were Norwegian Cruises (NCLH) (lost 4 technical attributes following earnings) and Blackstone (BX) (lost 2 technical attributes following earnings).
• After having the highest percentages of technical downgrades in Q2, Healthcare and Technology saw the percentage of downgrades fall from 22% to 7% in Q3 for Healthcare and 19% to 10% in Q3 for Technology.
• The third quarter of 2025 saw Consumer Staples and Industrials be the only two sectors where more stocks saw technical upgrades than downgrades. Notable stocks to see improvement following earnings were Dollar General (DG) and General Dynamics (GD), both of which increased to 4 for 5’ers.

Featured Charts:

Portfolio View - Major Market ETFs

Daily Option Ideas for December 12, 2025