This past Wednesday marked the second straight day of 1% excess return between SPX and SPXEWI. The forward performance following these signals has been compelling:

Earlier this week, we examined rolling 3-year excess returns for the S&P 500 cap-weighted index versus its equal-weight counterpart, tracing the relationship back to the early 1990s. Our analysis highlighted that the current level of excess returns is approaching highs not seen in nearly 25 years, a significant historical marker that underscores the dominance of large-cap stocks in recent years. (Click here to read the full piece.)

But this raises two critical questions: How strong are these excess returns? And what do periods of pronounced outperformance historically signal about the market’s future trajectory?

To explore this, we focused on a specific short-term phenomenon: consecutive days where the S&P 500 cap-weighted index outperforms the equal-weight index by more than 0.5%. This past Wednesday marked the second straight day of such outperformance, with Tuesday and Wednesday posting excess returns of 1.44% and 1.10%, respectively. These are not trivial moves—they suggest concentrated strength in mega-cap names, which often drives broader market movements.

Historical Context

We isolated all historical instances of two consecutive days of >0.5% excess returns since 1990, while removing clusters that occurred within two weeks of each other to avoid skewing results. After filtering, we identified 40 distinct occurrences over the past three decades. The forward performance following these signals has been compelling:

These figures point to a strong bullish bias following such streaks, reinforcing the idea that streaks in favor of large companies often precedes favorable market conditions. The chart below highlights all the instances in which this excess return streak has occurred, with the last few years contributing significantly to the total streak amount.

Taking It a Step Further

Given the magnitude of this week’s excess returns (>1% on both days), we examined whether more extreme signals carry additional predictive power. We found five instances since 1990 where two consecutive days each exceeded 1% in excess return. The results were similarly impressive:

While the sample size is small, the magnitude of positive forward returns suggests that these rare events often precede periods of strong momentum and investor confidence.

Implications for Asset Allocation

This week’s outsized excess returns, each surpassing 1%, are signals embedded in a broader narrative of market leadership and momentum. When viewed through the lens of historical precedent, these rare streaks have consistently preceded strong forward returns, suggesting that concentrated strength in mega-cap stocks act as a precursor to broader market rallies. For asset allocation, this underscores the value of staying attuned to market leadership trends. The benefit of using a momentum-driven approach is adaptability: if leadership begins to shift or weakness emerges, the indicators and tools on the site will reflect that change promptly, allowing for timely adjustments.