We have had three consecutive rate hikes this year and the market appears to be pricing in at least one more hike. Conventional wisdom is that the Fed is restrained in an election year. However, Fed Chairman Allan Greenspan fears a bubble in the stock market and will seek to fight it. It would not surprise me to see the Fed make a series of rate hikes early in the year or to raise rates more than the expected point the next time it acts. The mid-term view has to be that, absent of overseas problems, Greenspan would have raised rates a long time ago to try and cool down a speculative stock market.
Conventional wisdom says that the market is very overvalued.
However, the overvaluation is concentrated in the popular big cap stocks which just seem to go higher and higher. We all know that trees don't grow to the sky. What is starting to become recognized, and talked about, is the fact that the great majority of stocks are not matching the performance of the market indexes. At some point money managers will have to put money to work in stocks with valuations, which are justifiable by reality and not hope and hype. This happened for a brief time early last year.