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By some measures, stocks have never been so expensive, especially smaller ones.

The problems with most valuation measures are well-documented, and Marketwatch highlighted one of them that is particularly prominent with small-cap stocks. A lot of small companies lose money, and those are often not included when firms calculate metrics like price/earnings ratios.

If we use forward earnings estimates from Bloomberg, then we can alleviate some of those issues. Even so, small stocks haven't been this pricey in 25 years.

Granted, estimated earnings bring their own set of issues, especially now with uncertainty so high. The last time the forward P/E ratio for Russell 2000 stocks spiked above 40 was the bottom of the 2002 bear market, so this is not necessarily a reason to think stocks are expensive, just that uncertainty about profits is high.

If we focus on the other issue, the fact that many of these companies are losing money, then it seems like a major negative. Below, we can see the percentage of firms in the Russell 2000 that have negative operating earnings over the trailing 12 months. It just moved above 30%, the most in over a decade.

Only twice before in 20 years have such a high proportion of these small companies lost money - April 2002 and December 2009 through February 2010.

Investors are anticipatory creatures, so by the time so many companies experienced negative earnings, stocks had already suffered major losses. By the time it got to this point, investors were already anticipating the turn, and the Russell was close to bottoming (in 2002) or already had (in 2009).

It's common to see hyperbolic headlines about high valuations and a preponderance of money-losing companies. It's less common to see an objective look at what it might mean. There isn't much history here, but from what we can see from the rare precedents, these fundamental worries are overblown.

On Monday, we highlighted the fact that the largest ETF in the world had just enjoyed its fifth straight day with at least a 0.5% gain, tied for the longest streak in its history.

There have only been a couple of clusters when SPY managed this feat, those (very roughly) being the lead-up to the 2000 bubble peak and the end of the financial crisis. Even though they were opposite environments, SPY struggled over the next month, with two exceptions.

The S&P 500 index itself didn't quite make it, but if we round a 0.45% gain to 0.5%, then it does and ranks among the longer streaks since 1928.

Future returns were about in line with random, with a tepid risk/reward ratio. In recent decades, returns up to three months later were poor, with all but two of the signals since 1980 showing a negative return sometime between 1-3 months later.

The Nasdaq Composite has also enjoyed a streak with big gains, with the added boost of hitting at least a 52-week high.

This was not a consistent sign of buying exhaustion, though returns from three months and beyond were below random.

For the S&P 500, the Nasdaq's streaks were less kind.

When tech stocks had enjoyed such heavy and persistent buying pressure, the S&P was higher a month later only 36% of the time, and the risk/reward was negative up to three months later. Since 1997, there has only been one signal that did not show a negative return at some point over the next 1-3 months.

Momentum can be a good thing, and it can override sentiment extremes, which is why we spend quite a bit of time looking at it from various perspectives. This recent run has been notable enough to suggest future returns over the medium-term face a headwind and it has not been the kind of activity that would allow stocks to run uninterrupted over signs of excessive optimism.

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