Stocks aren't topping out yet, but there could be a pullback if the tax bill doesn't proceed as expected.
Sen. John McCain's support for the tax bill fanned an already rising market into a frenzied rally Thursday. But strategists said that market surge does not necessarily signal too much toppiness for a market that has risen more than 18 percent this year, as measured by the S&P 500.
The Senate bill was expected to be voted into law by Friday, and then move on to be reconciled with the House tax plan. However, a proposal for a fiscal trigger that satisfied deficit hawks was rejected Thursday evening, under Senate rules, and there was a scramble to find an alternative solution.
"I think everyone expected an agreement by tonight," said Jack Ablin, CIO of BMO Private Bank. "If it doesn't look like it's going ahead in the morning, there could be disappointment."
John Velis, macro strategist at State Street, said if the bill doesn't look like it will pass, "it will sell off what it priced in."
"The tax story will be the story of the day. Will it pass or not pass? Day to day that will push the stock market around in the short term," he said.
The stock market's rapid surge Thursday, on top of an already solid gain for November, spurred talk of bubbly behavior in stocks. But some strategists disagree, including market guru Laszlo Birinyi.
"The thing most people are missing out on is the fact that there's still an abundance of trading cash," said Birinyi, founder of Birinyi Associates. "That's why whenever you see this opening , whether it's the market, a stock, a sector, you see this movement."