The S&P 500 finished modestly lower yesterday, the first day back from the Christmas holiday. No real news to speak of and we should expect more of the same as we finish off 2017.
Now that Tax Reform is law, there isn’t much for traders to talk about or look forward to. And without big ideas to latch onto, the market has been treading water these last few weeks. Unfortunately for bulls the window for a Tax Reform pop has already closed. If it was going to happen, it would have happened by now. Gains over the last several months priced in tax cuts and there was no one left to buy the news. Now that Tax Reform is old news, we need turn our gaze to what comes next.
Strong earnings reports next month could extend this rally, while any bad news could trigger a dip back to 2,600. High probability of small gains versus a low probability of bigger losses. The problem for bulls is everything needs to go right to beat these already lofty expectations. Bears only need one thing to go wrong. Perfection versus the messiness that is the real world. Markets move in waves and it’s been a while since we cooled off. I don’t know what will trigger the next dip, but I do know it is coming. The only question is when.
Most likely momentum will keep us drifting higher over the near-term, but it is only time before the next problem crops up and we fall into a long overdue dip and consolidation. 2017 was a great year for stocks, but unfortunately the rarest thing is for two years to be exactly the same. If 2017 was a gentle ride higher, that tells us 2018 will be anything but easy.
Don’t get me wrong, I’m not bearish. I just expect the market to consolidate recent gains and that means we will have to work for our profits in 2018.