The recent surge in Treasury yields has meaningfully reshaped the relative appeal of stocks and bonds, prompting investors to reassess whether equities continue to offer sufficient compensation for risk in a higher‑rate environment. The U.S. 30-Year Treasury yield (TYX) climbed to an intraday high of 5.15% earlier this week on Monday (5/18), marking its highest level in nearly two decades—dating back to June 2007. As illustrated in the chart, this milestone reinforces the market’s growing expectation that interest rates may remain elevated for an extended period.

While inflation peaked in 2022 and has moderated meaningfully since then, investors continue to question the likelihood of a full return to the Federal Reserve’s 2% target. Several structural and cyclical forces are contributing to this skepticism, including persistent labor market tightness, ongoing tariff and trade-related uncertainties, and elevated energy costs. Together, these factors suggest that inflationary pressures may prove more durable than previously anticipated, supporting the “higher-for-longer” rate narrative.

Against this backdrop, the Equity Risk Premium (ERP) has come under increasing pressure. The ERP is defined as the spread between the S&P 500’s earnings yield (E/P, the inverse of the P/E ratio) and Treasury yields—commonly the 10-year and 30-year—which serve as proxies for the risk-free rate. This measure is widely used to assess whether equities are adequately compensating investors for taking on risk relative to long-duration government bonds.

In recent years, strong equity market performance has pushed valuations higher, with price appreciation outpacing underlying earnings growth. As a result, the earnings yield has compressed at the same time Treasury yields have risen sharply, leading to a meaningful narrowing—and eventual inversion—of the ERP.

The first chart illustrates the S&P 500 trailing twelve-month (LTM) earnings yield plotted against both the 10-year and 30-year Treasury yields since 2006, highlighting the growing convergence between equity and bond yields. The second chart shows the resulting ERP, measured as the spread between the earnings yield and each Treasury maturity, with long-term average levels denoted by the black lines. Notably, the ERP versus the 30-year Treasury yield turned negative in early 2025 and has continued to deteriorate, currently registering approximately -1.5%, well below its long-term average of roughly 2.2%. A negative ERP implies that equities are offering less yield than long-term Treasuries, signaling a diminished risk premium and raising questions about the relative attractiveness of equities at current valuation levels.

So, does this mean it’s time to reduce equity exposure? Not necessarily.

The Percent Positive for the S&P 500 (^PTSPX) currently sits at 56% after reversing down this week, indicating that a majority of stocks still exhibit positive long-term trends. This supports the view that, despite macro headwinds, underlying market breadth—and the broader uptrend—remains intact. Importantly, indicators like Percent Positive adapt in real time. If conditions weaken, this will show up through declining breadth and a move below key thresholds—providing a clearer signal to reassess exposure rather than acting prematurely.

With a majority of the S&P 500 (SPX) companies having released their 2026 Q1 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 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

Slightly 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, 80% of high technical attribute stocks beat top line mean fundamental analyst estimates sourced by FactSet and 87% beat bottom line estimates. Intriguingly, the same percentage (80%) of low attribute stocks beat top line estimates and a notably high 85% beat bottom line estimates.

The overall percentages/trends for Q1 2026 were higher compared to Q4 of 2025 with an increase in beat rates for both high and low technical attribute names. Top line beats for high attribute names increased from 77% (Q4) to 80% and bottom-line beats rose from 78% (Q4) to 87%, bringing the overall percentage of top and bottom line beats up from 65% (Q4) to 74%. Similarly, lower technical attribute names witnessed increases from 69% (Q4) to 80% for top line, 75% (Q4) to 85% for bottom line, and 56% to 72% for top and bottom line. 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 compared to prior quarters as firms have baked in geopolitical and interest rate concerns.

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 May 20th, 2026.

Sector Highlights:

• While this quarter witnessed a broader increase in top and bottom-line beats, Q1 saw seven of the eleven sectors see more technical upgrades than downgrades – roughly in line with Q4 2025. Notable sectors to see decreases in technical upgrades from Q4 to Q1 were Energy and Materials, though both saw low to no technical downgrades in Q1.
• Three sectors – Consumer Discretionary, Industrials, and Utilities - saw more technical downgrades than upgrades. The dispersion between upgrades and downgrades for Discretionary stocks resides at only 3%, while Industrials only saw 4% of the stocks within SPX see upgrades and 13% saw downgrades. Notably, Utilities was the only sector to see no technical upgrades during the Q1 earnings cycle after seeing Q4 2025 witness 15% of Utilities stocks see technical upgrades.
• Sectors with the highest number of technical upgrades were Healthcare, Consumer Staples, and Technology, followed closely by Real Estate. Quarter over quarter, Healthcare and Staples saw upgrades increase up 5% and 8%, while Technology and Real Estate were slightly less in Q1 versus Q4. Among the four sectors the most notable technical upgrades following earnings were UnitedHealth (UNH), Altria Group (MO), NXP Semiconductors (NXPI), and ProLogis (PLD).
• The stocks within the S&P 500 Index that witnessed the most notable technical downgrades were Arista Networks (ANET) - which fell from a 4 to a 2 in technical attribute rating – and RobinHood (HOOD) -which dropped from a 4 to a 1 TA rating post earnings.

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Portfolio View - Major Market ETFs

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