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Small-cap stocks have stolen the spotlight by enjoying a record run of days with more than a 1% daily gain. The broader market has rallied, as well, even if giving up some of those gains on an intraday basis.

Over the past 6 days, the S&P 500 has traded higher by at least 1% at some point during the day. That's the longest streak since 2011 and has been exceeded only a few times in the nearly 40 years. It was more common prior to the early 1980s, at least if we can rely on intraday from data back then.

Most of these streaks occurred during downtrends when volatility was higher. If we look for any time the streak lasted 6 days while the S&P was trading below its 200-day average, then we get the following.

These thrusts led to some back-and-forth over the short-term as buyers took a breather. By a month later, returns turned more consistently positive and they were significantly so over the next 6-12 months. Since these instances suggest thrusts within bear markets, it makes sense that the long-term returns were above average.

Using a traded vehicle like a futures contract provides more accurate intraday data, so let's look at the same set of streaks going back to their inception in 1982.

We don't need to stipulate that they were trading below the 200-day average, because all of them were. And most of them were at least a temporary head-fake. The only signal that didn't show a negative return at some point was the kick-off to the new bull market in March 2009. That was rocketed higher and just kept going.

So, if we see something similar in the coming week(s) it will give at least a little more credence to the idea that we've witnessed something other than just another bear market rally.

Try, try, and try again. After years of a relative struggle, small-cap stocks are trying to assert some dominance.

As of Tuesday, the Russell 2000 managed to gain more than 1% for five consecutive days, approaching a record streak of big daily returns.

Hitting a streak of five days of 1% gains has mostly led to gains, at least based on the 3 times it's triggered before. In 1998 it was the kick-off to even more gains in the months ahead, while the latter two see-sawed between gains and losses in the months ahead.

If we expand the sample size by looking for streaks of four straight days of 1% gains, then we see that returns were mostly positive, with only a single, relatively small loss over the next year.

Because of this surge over the past week, the ratio of the Russell 2000 (RTY) to S&P 500 (SPX) has surged to a 30-day high, after falling to yet another multi-year low in March.

This is taken as a universally good sign, as it suggests that some of the hardest-hit companies are finding buyers. We've seen repeatedly in years past, though, that leadership in small-cap stocks is not a consistently good thing. No matter how much it might make theoretical sense, empirically the evidence is mixed at best.

Still, let's look for times when the ratio between the Russell and S&P fell to a 52-week low, then after a period of a few weeks finally hit a 30-day high (this avoids the instances when there was a quick spike that usually failed).

For the Russell, it was an okay sign. Returns going forward were about in line with random. Over the next 2-3 months, its median return was barely positive, and by three months later, the risk/reward was about even. Not exactly awe-inspiring.

For the S&P, it was a better sign.

That means the ratio of the Russell to S&P usually fell.

Because of the generally negative trend in small-caps relative to large-caps in recent decades, future returns were consistently negative. Over the medium-term of 1-3 months, there was a strong bias toward the Russell under-performing the S&P after these initial recoveries.

Because the rally in recent sessions hasn't necessarily been driven by the largest stocks, the equally-weighted version of the S&P 500 (SPW) has been making new 30-day highs relative to the capitalization-weighted index (SPX). This is very similar to the pattern of the Russell to the S&P.

Like we saw with the RTY / SPX ratio, this was not a consistent signal that the equal-weight S&P was going to continue to out-performed the cap-weighted index that everyone follows and benchmarks.

The cap-weighted index had a modest bias toward shorter-term weakness, but longer-term strength.

The equal-weighted index saw the same pattern, but its returns just weren't as strong.

These recoveries are mostly a good sign for the broader market. For small-caps, or even just the average stock, it's less of a good sign than it is for broader, cap-weighted indexes.

Consumers have been greatly impacted by the economic and psychological toll from the pandemic, and the depth of the impact is showing now in monthly surveys. We saw yesterday that consumer confidence suffered one of the biggest drops ever.

The "yeah, but" counter-argument to that drop could be that consumers only became more pessimistic about now, not the future. The Conference Board separates the survey into confidence about present conditions versus the future, and there was a massive difference between the two.

Confidence about the present dived 90 points, more than double any other month-to-month decline. Yet confidence about the future actually rose 7 points, likely helped by the rebound in stocks.

There have only been a few times when consumers' confidence in their present situation declined by more than 10 points while they became more optimistic about the future. Only one of those triggered in the past four decades.

This happened at the market bottom in 1974, but otherwise was early in de-risking phases in 1970, earlier in 1974, and 2001 following the 9/11 tragedy. Because of that, future returns were terrible three times and excellent once.

Such big drops in the present situation are unusual, so we have to relax the parameters if we want to get a larger sample size. If we look for times when present conditions dropped at least 5 points while expectations for the future rose at least 5 points, then we get the following.

In both studies, the very short-term was good, helped by a bullish seasonal pattern at the beginning of most months. Returns after that were a little better than random, with a mix of moderate gains and losses in the months ahead.

Even though stocks rebounded more than 10% in April, maybe they hadn't rallied enough for most consumers to notice during the study period. More of them became optimistic specifically about the stock market during the month, but still, only a net 4.6% of them expect stocks to keep rallying.

Below, we can see every month when stocks jumped at least 5%, and consumers became more optimistic, but fewer than a net 5% of them expected stocks to continue to rise.

This was a mostly positive thing, and returns were better than those months when more than a net 5% of consumers expected stocks to rise (in those cases, the 2-month forward return was -0.4%). Consumers jumped the gun by becoming more optimistic in 2001, 2002, and 2015, but otherwise, stocks did okay.

It's easy to be a knee-jerk contrarian and assume that because consumers didn't completely give up about the future in April, then they're not really pessimistic and we must have further to fall in order to wring out the optimism and allow stocks to recover. It hasn't really worked that way in the past, though. The current drop in present conditions is so many standard deviations from the norm that no historical precedent can serve as a template here, but from months that look at least passingly like the present, it might be a modest shorter-term positive.

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