With a majority of the S&P 500 (SPX) companies having released their 2025 Q2 earnings report, today we wanted to review how stocks behaved based on their technical rating.

With a majority of the S&P 500 (SPX) companies having released their 2025 Q2 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, 82% of high technical attribute stocks beat top line mean fundamental analyst estimates sourced by FactSet and 86% beat bottom line estimates. Conversely, just 78% of low attribute stocks beat top line estimates and 76% beat bottom line estimates.

The overall percentages/trends for the Q2 2025 earnings season were notably higher than 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. Additionally, many companies have been rather loud about taking a cautious approach to earnings forecasts, suggesting the hurdle rates may have been lower as firms have baked in tariff uncertainly and other global concerns. In quite a few cases, trade deals with various countries and trade unions alleviated some concerns that may have been higher earlier this year.

A technical explanation as to why beat rates could be better for high attribute stocks compared to low attributes relates to market efficiency. The U.S. large cap equity market is arguably efficient, meaning that relevant information is vastly known and quickly factored into price action. Carrying that idea forward, people want to invest in companies with strong future earnings potential, which means increased demand for the issuer stock, which drives up prices and makes for a high technical rating on our system. As mentioned, tampered expectations for Q2 earnings likely played a big role in the notable percentage increase quarter over quarter.

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 this past Wednesday (August 28^th, 2025).

Sector Highlights:

• An intriguing trend this quarter is a larger percentage of technical downgrades; meaning that stock prices fell to the extent of dropping in technical attribute rating 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 was a notable change within sectors quarter over quarter.
• Seven 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 Healthcare, Technology, and Materials. Notable examples within each sector are Abbott Laboratories (ABT) and Intuitive Surgical (ISRG), each falling 2 technical attributes, along with Fortinet (FTNT) and CF Industries (CF), both dropping 3 technical attributes following earnings.
• The second quarter of 2025 saw Consumer Discretionary stocks improve in technical attributes following earnings, marking the only sector to see more technical upgrades versus downgrades. About 15% of Discretionary firms saw some sort of technical upgrade following their earnings, marking a double-digit increase for the sector quarter over quarter (6% in Q1 2025). After being a notable loser in recent quarters, Nike (NKE) saw an increase from a 2 to a 4 technical attribute rating following earnings.
• Communication Services witnessed a notable change following Q2 earnings season as more stocks saw technical downgrades versus upgrades. This comes after the sector was the top dog in the study for technical upgrades in Q3 and Q4 2024. Charter Communications (CHTR) fell from a 4 to a 0 technical attribute rating after dropping 18% following earnings in July, making it the stock that witnessed the most technical deterioration among S&P 500 names this past earnings season.