Record setting win streaks for the S&P 500 and Nasdaq Composite

Key points:

• The S&P 500 and the Nasdaq Composite have notched multiple record highs and impressive win streaks
• Similar price patterns led to additional near-term gains for the Nasdaq and a pause for the S&P 500

Can the Fear of Missing Out (FOMO) momentum continue following rare win streaks?

The S&P 500 has registered gains in 10 of the past 11 trading sessions, reaching an all-time high for six consecutive days through the close on Wednesday, a rare occurrence achieved only 12 other times in history.

Demonstrating similar price momentum strength, the Nasdaq Composite closed higher in 10 of the last 11 sessions and achieved seven successive record highs, a rare event that has happened 11 other times since 1971.

If you're familiar with market history, you'll know that stock indexes seldom reach a long-term peak when price momentum is positive, as it is currently. However, in the near term, it can represent buyer's fatigue, leading to a pause that rejuvenates the bullish trend. 

Comparable win streaks preceded a near-term pause 

Following similar win streaks, the world's most benchmarked index tended to show signs of exhaustion in the near term. Over the next month, the index declined 67% of the time, with the median maximum loss exceeding the maximum gain. Still, a year later, the S&P 500 was higher in 75% of the precedents, suggesting a buyer's exhaustion pause that refreshed a bullish trend.

While the most recent instance in November 2021 could lead bears to yell "fire" in the theater, it's essential to recognize that the Fed was nearing a tightening phase then, which isn't the situation today. 

Over the subsequent two months, the S&P 500 experienced just one maximum loss exceeding -5%, which occurred in 1928. 

Therefore, should a consolidation develop, it's likely to be shallow.

One potential analog

Whether the Fed can engineer a soft landing remains to be seen. If you're in that camp, the win streak precedents in 1995 and 1996 produced consolidations within an overall bullish trend.

An even more impressive win streak from the Nasdaq Composite

Not to be outdone, the Nasdaq Composite recorded seven straight all-time highs as it closed up in 10 out of 11 sessions.

Comparable win streaks preceded additional near-term upside followed by a pause

Following similar win streaks for the Nasdaq Composite, the favorable price momentum tended to persist over the next month, with the index rising 82% of the time. However, the upward trajectory waned three months later, with a negative median return and a less-than-coin-toss win rate. 

Like the S&P 500, the Nasdaq Composite reestablished its uptrend, rising 73% of the time a year later.  

The maximum gain/loss table shows that the Nasdaq Composite experienced only one loss that was more significant than -10% over the following two months.

What the research tells us...

The S&P 500 and the Nasdaq Composite have exhibited impressive short-term win streaks while recording numerous all-time highs. Following similar patterns, both indexes suffered from buyer's exhaustion, leading to a consolidation at some point over the next three months. Should some turbulence develop, history suggests it's a pause that refreshes a bullish trend.