With the majority of S&P 500 (SPX) companies having released their 2026 Q2 earnings report, today, we wanted to review how stocks behaved based on their technical rating.
With the majority of S&P 500 (SPX) companies having released their 2026 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, while 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 technical attribute of 3 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
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 88% beat bottom line estimates. This quarter, the percentage (70%) of low attribute stocks that beat top line estimates was 10% lower compared to Q1 2026, while beats against bottom line estimates for low attribute names remained stable quarter over quarter. The overall percentages/trends for Q2 2026 were mixed compared to Q1 of 2026, with a decrease in top & bottom-line beats among low attribute stocks, while percentages for high attribute remained largely the same as Q1 2026. 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. This quarter, top line estimates proved challenging for low attribute names, suggesting that either the bar for expectations was too high or low attribute names witnessed notable misses that sustained technical deterioration.
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 August 26th, 2026.
Sector Highlights:
- Q2 saw five of the eleven sectors see more technical upgrades than downgrades with healthcare, industrials, and discretionary seeing the most upgrades. Healthcare remained the top sector this quarter with roughly a quarter of the sector seeing technical upgrades. The largest swing in technical upgrades belongs to industrials with 23% of stocks seeing upgrades, after seeing only 4% of stocks have technical upgrades in Q1 2026.
- Notable sectors to see decreases in technical upgrades from Q1 to Q2 were consumer staples and energy, with both sectors seeing zero upgrades in Q2 after seeing 12% and 5% in Q1.
- Six sectors saw more technical downgrades than upgrades, with materials witnessing the largest percentage of downgrades and change in downgrades from Q1 to Q2. Technology ranks 2nd in terms of technical downgrades, while consumer staples and energy saw notable increases in technical downgrades.
- The most improved stocks among the five sectors that saw the most notable technical upgrades following earnings were Airbnb (ABNB), Dexcom (DXCM), General Motors (GM), and General Dynamics (GD). Other notables to see improvement this quarter post earnings were Apollo Global (APO) and BlackRock (BLK).
- The stocks within the S&P 500 Index that witnessed the most notable technical downgrades were the TJX Companies (TJX) and Tapestry (TPR) – both of which fell from 4 TA ratings down to 2s.
