Is the Red-Hot S&P 500 About to Cool Off?

The S&P 500 Index (SPX) touched another record high today, and is within striking distance of its fifth straight weekly win. The last time the stock market index enjoyed a five-week winning streak was in the first quarter, and prior to that you'd have to go back to early 2016. As such, we decided to take a look at how the red-hot S&P tends to perform after five-week winning streaks.

The longest ever weekly winning streak for the SPX was in 1957, with the index surging 9.31% over 13 weeks, according to Schaeffer's Senior Quantitative Analyst Rocky White. Meanwhile, a second five-week winning streak in 2017 would be the SPX's first pair of such rallies in a calendar year since 2014; there was just a single five-week winning streak in both 2015 and 2016. Since 2010, there have been 13 of these stretches.

However, if past is prologue, the SPX could be set to cool off heading into 2018. Following five-week win streaks since 2010, the index has averaged in-line one- and two-week returns -- and even boasts a much higher-than-usual percent positive at the two-week marker -- but has racked up weaker-than-usual returns looking one and three months out.

Specifically, the SPX has been 0.43% higher, on average, a month after five-week rallies -- about half its anytime average one-month return of 0.87%, going back to 2010. Even worse, the index has averaged a three-month gain of just 0.42% after five-week win streaks -- not even one-sixth the broad-market barometer's anytime three-month return of 2.81%. However, much of that derives from a steep 13.2% pullback after an early 2010 win streak.

In conclusion, if history is any guide, the SPX could continue to saunter higher through October. But those looking for a big "Santa Claus rally" to end 2017 could find the index's upward momentum relatively muted, compared to previous years, in which December is one of the best months for stocks. But, in the stock market's quietest year since 1993, what else would you expect?