An impressive start to 2018 has pushed believers and skeptics almost universally onto the bullish side of the ledger as regards indefinite duration for the market's overall advance. Fine, but this basically is more the reward for having been bullish 'if' Trump won, as you know. Hence, it's rather risky for speculators come enter the extended market now, 'even if' it extends. 

As history has shown, chasing moves, especially short-term, with oblivious disregard to the implications of a 'crowded' traded on the long-side, invites a correction, almost at minimum. Now we actually are not inclined to look for more before seasonal reinvestment funds begin to flow in, which will in a sense stoke the ability of money managers to press prices higher. 

Combine that with rotation, which puts especially high multiples on stocks that are unaccustomed to such valuations and you can work higher. That's not news as we've discussed this all week partially because the Trumpism era has released animal spirits that are expected to trigger significant, and very much needed, infrastructure rebuilding and so on. 

Incidentally, the horribly extreme storms have done such damage already that this too enhances prospects of rebuilding being often preferred over a repair approach and that's going to be seen as the Northeast has rarely if ever experienced anything like this. Because the surges from the sea are saltwater; there will be corrosive aspects beyond simply flood recovery. 
 

All in all this is a challenging time for people but will be good for business. At the same time the geopolitical backdrop 'seems' to be softening a tad as the South and North Koreans get set to meet Tuesday about calm for a time during the upcoming Olympics, and also discuss general tensions. It can't be said there's calm in Iran; and nobody really knows the outcome. 

Technically many indicators are not 'jammed' overbought as I've noted; at the same time others (Buffett and Shiller come to mind) have argued an overvaluation situation for a long time. I suspect they were domestic based perspectives (as are most) and thus not sufficiently allowing the benefits of a reviving (synchronized is an overworked term, but accurate) global GDP scenario and recovery. Meanwhile the ECB pretends it isn't happening; for the purposes of suppressing interest rates and being more competitive. 

With the proviso for tax cuts, we've had less cause for concern, especially as corporate tax cuts were approved and not just coming down the pipe. That serves to boost the ratio of corporate profits would as a share of GDP. The problem is this was the presumption; and is largely priced-into stocks. 
 

It is dangerous to use indicators that have shifts in expected ratios merely retroactively after we got the tax and repatriation reforms; because they're being interpreted as somehow giving a better forward outlook than already known, with the presumption of tax passage. Hence this gives misleading excessive upside probability indications, which the market actually saw for over a year now; and thus has likely heavily discounted.

Bottom line 

This is fine; we're not suggesting shorting, just holding, as we have with respect to core positions throughout the last year and longer. At the same time we caution chasing the upside rotation (with various ETFs, as that's primarily how they do it), we would be nimble and look for these initial bursts to the upside to subside, with some interim consolidation at a bare minimum, and perhaps a shakeout that may seem inexplicable.