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We think there are four variables presently at work that are inhibiting stock market rise and one variable that typically means the market has gone as high as it can for the current cycle. The five mitigating variables are:

  1. Individual investors have gone heavily into this market; which tends to mean it is overbought.
  2. The Cyclically Adjusted Price Earnings (CAPE) ratio is sufficiently high to suggest less-than-inflation rates of return ahead on average for the next five years.
  3. Corporate profitability is going to need a significant lift from the tax changes to return the S&P 500 to a rising trend, and such a lift is not a slam dunk.
  4. The specter of a trade war is creating uncertainty.
  5. This is a mid-term election year.