If not for the big, arbitrary round number sitting in the near distance for the Dow industrials, we'd not be tantalized, or exasperated, or asking why this market hasn't effortlessly added another two-tenths of one percent simply to touch the 20,000 level, on top of what's been an impressive 9-percent, six-week surge.
Here's what I'm watching heading into the closing bell:
The market is acting fine, if a bit tired. Very little selling pressure is evident, even as it possibly builds up for release in January. Just a bit more than 40 percent of the volume is in advancing stocks today. The equal-weighted S&P 500 (check the RSP ETF) is nearly dead flat. The indexes have plateaued and paused in mid-December, just as the textbook says they "should." The seasonal tilt is to the upside, though nothing is a lock and the past two years the strict "Santa Claus Rally" period – the last five trading days in December and first two in January – have been weak.
The issue is buyer's fatigue and ebullient sentiment, now that investors have lifted their equity exposure and grown comfortably optimistic about stocks. The statistical reflections of this collective embrace of the rally keep piling up. The weekly Investors Intelligence poll shows nearly 60 percent bulls and around 19 percent bears – a lopsided figure that tends to lead to very little lasting upside in the near term, though doesn't mean quick or deep downside. The ISI Hedge Fund Exposure gauge shows something similar – hedgies have ramped their allocation to stocks to levels that prevailed in early and mid-2015, from which little headway was made and some significant choppiness subsequently arrived.
Much was made of the brief dip in the CBOE S&P 500 Volatility Index (VIX) to below 11 this morning for the first time since August 2015. Sounds ominous given that was just before a brutal rolling correction got going. But the absolute level here mostly reflects the calm that's prevailed and the muted activity likely to accompany the holiday period to come. Yes, it fits into the mosaic of indicators saying "no one is too worried right now." But VIX futures for protection a few months out are trading a good deal higher, implying that traders are simply moving out their insurance purchases. Very low VIX readings often precede turbulence, but VIX can also stay low for a while without much incident.
A good deal of chatter today about Goldman strategists' saying much more upside in stocks could be self-defeating, as it would likely come along with a buildup of inflationary pressures and risk of an overheating economy, and so the Fed would be motivated to tighten more than now expected. The idea that pouring stimulus on a fairly healthy economy and tight labor market will most reliably drive an inflation scare isn't new. The question is how the asset-market effects – surging dollar, higher Treasury yields – play out. It has seemed safe to be bullish on growth-oriented policy moves in recent weeks, because nothing could prove such bets wrong for months, at least. As the details take shape and markets begin to discount the probabilities, we'll see if stocks can hold these valuations in the New Year.