After all the hoopla and expectations surrounding the magical "Dow 20,000" mark, it appears that some investors have made up their minds and are selling the rally, as any astute big hitter might.
While its fun to think that stocks will continue to reach ever higher and higher levels forever into the future - a reasonable strategy for those with a 20 or 30-year time horizon - it isn't exactly realistic to expect stocks that are already at historic levels to keep chasing higher.
The arguments in favor of a correction grow stronger with each passing month. The bearish position is bolstered by any number of factors, including:
Extreme valuations (stocks are trading well above the average P/E of 16)
Recent performance (prior to Wednesday's triple-digit decline, the Dow has gained nearly 2000 points (12%) since November 8)
Weak macro data including soft industrial production, capacity utilization, spotty data worldwide)
Strong dollar (normally bad for US exporters and thus, many US stocks)
Recent hike in the fed funds rate and the potential for continuing interest rate gains making bonds more attractive as an alternative to stocks
Zero to negative income growth for the majority of the population
Record stock buybacks reducing participation and making a mockery of EPS
Market timing vis-a-vis capital gains taxes (January is usually be a great time to book gains)
Chasing stocks at this juncture is a fool's errand, as it would amount to the inverse of the "buy low, sell high" adage that has guided even novice investors for eons.
There are more than a few out there reading the tea leaves for what they are rather than what they appear to be.
At the Close, Friday, December 28, 2016:
Dow: 19,833.68, -111.36 (-0.56%)
NASDAQ: 5,438.56, -48.89 (-0.89%)
S&P 500: 2,249.92, -18.96 (-0.84%)
NYSE Composite: 11,058.88, -87.52 (-0.79%)