Discretion as the better part of valor has been my contention over a few weeks now, as so many advocated buying and chasing what was in a sense peddled as a 'new paradigm' or permanently high S&P plateau.

It is a new era; an era I've called an American Renaissance; not just in manufacturing, which I've implored this country to embrace for years. It however was 'discounted' by the market by virtue of a year of recovery; at least in equity prices. The actual economic recovery is barely started, and can accelerate concurrently with a contraction in equity prices.
 

As better profitability actually modulates excessive multiples, by doing so, we can see the disconnect between real economics and equities at last come together a bit (over the next two years). Thus, if we get those profits, then the market isn't really ahead of itself in the very long run; at the same time the advance we forecast nearly 15 months ago if Trump won, can be subjected to a correction (perhaps hefty) but not cataclysm since the actual business backdrop will progressively improve.

Better efficiencies, new healthcare approaches, and higher incomes ... all will not just vindicate (and devastate) opposing views of a new direction that's good for the bulk of the American people; but also create realistic support under equity prices, after some sort of interim washout occurs.

In sum: this is where we are ahead of Tuesday night's Presidential Address; in a topping pattern that has exceeded common norms while we're told the shortage of shares or all kind of silliness created a permanent new era.

Most presume other than shakeouts the market is good for another year or more before the Bear can emerge. That would be swell; but I for one do not assume we're good for another year. As you know; I said before the 2016 Election, even if you hate Trump; just hold your nose and buy stocks...going higher than anyone would believe.

By doing so it DISCOUNTED much of the recovery and benefit from tax reform. In other words, that's now priced in. I'm a bit surprised S&P didn't break earlier this month once the S&P went parabolic; so it fought a bit to hold things together. And I expect everyone thinks it will go back up; the usual cheerleaders are screaming buy the dip with all their gusto.

Well it may do so temporarily because you don't reward selling into the hole. But BECAUSE of the successful tax and regulatory policy changes (whether one approves of them or not isn't the point); you will likely see a more aggressive Fed; and higher rates (and perhaps quite soon).

The kicker will then be that the ECB and BoJ will have little choice other than to step up and hike rates too ... even though their comments lately at Davos were contradictory to each other (ECB benigh and Japan a bit hawkish). So you risk getting competitive rate increases to stop the fund flows to the USA. All that will enhance the appeal of bonds versus stock prices ... perfectly normal. However that focus along with a rising growth pace, suggests the rallies in stocks won't be terribly sustainable.

Those buying weakness or strength this year are FiGHTING THE FED, which I have warned would be the case. Once the market seriously declines (this day was not that); then we'll have a lower risk entry point.
 

At least that's the core of my overview and I'll be suspicious of the likely 'relief rallies' if we manage to get thru the Fed meeting without a hike. I also expect a calmer tone in Washington; as this second year is Trump's best chance (perhaps only chance for the Republicans) to move closer to the 'Center' and try avoiding a bloodbath at midterms. By then stocks won't be so solid although incomes will be visibly better for many; and a few tens of millions will understand why these policies give the Nation at least a chance at muddling through a demographic inflection the likes of we've never seen; and realize that a growing economy is the only shot it seems at seems of overcoming horrendous fiscal policies of a previous generation allowed by both parties. So yes we may get a Spring rally of course; but skeptical of sustainability or even notably higher highs.