Everyone wants a correction. That is, until they get it...

Here's a little update on how I see the current state of the equity markets:

Some of the good news (assuming you view continued rising stock prices from here as a good thing):

• December retail sales up...


• Business inventories and sales up...


• Industrial Production up...


• NFIB (small business) survey positive...


• Europe expected to grow (albeit tepidly) this year...


• GM paying a dividend (just threw that one in)...

Some of the bad news (assuming you would view a correction or bear market here as a bad thing):

• December jobs number was terrible...


• Bullishness on the market is very high (that's a legitimate contra indicator)...


• Margin debt (folks borrowing against their stocks to buy more stocks) is very high ("   "   ")...


• Valuations, while not, in my view, terribly expensive, are full (i.e., not cheap either)...


• Interest rate risk is clearly to the upside...

I see rising interest rates as the most obvious potential headwind for stocks this year:

The economy picking up will result in higher long-term interest rates. That could be a good thing for banks, in that---assuming short-term rates remain low---they'll access money very cheaply and lend it out at higher rates: If loan demand doesn't wane with higher rates, that bodes well for margins.

However, higher interest rates will bring equity valuations into question (price to earnings ratios tend to expand in low-rate environments and contract as interest rates rise). Earnings, in that event, will definitely have to improve to justify present, or higher, stock prices from here. Meaning higher interest rates have to be the result of a better economy, resulting in higher corporate earnings. If they come as a result of investors fleeing the bond market out of fear of higher rates (for example), that would be bad news for the stock market.

Corrections are those things everyone says they want (they're healthy phenomena)---that is until they come:

Ten percent corrections have historically been annual events. Last one, however, occurred in the fall of 2011 (over 2 years ago). Everyone says we need one, but just wait till it happens. While 10% may not sound like much (because it's not), we're talking roughly 1,640 Dow points from here, which would take us back down to spring 2013 levels ---and fall 2007 levels (almost) before that. That'll feel terrible to a lot of folks, except of course those who've been waiting suffering (big-time) for that event before finally getting in.

Bear markets are those inevitable things that nobody (save for shorts) wants (but, yes, they're healthy) --- "inevitable" being the operative word:

A 20% decline is the definition of a bear market. While they are rarer phenomena than your annual 10% correction, they happen. They always happen. They generally come when they're least expected. That's the thing about the sentiment indicators: when folks are way bullish, they're in the market. In that event, therefore, there's no marginal buyer in-waiting to bid prices yet higher. As I hinted above, recent surveys point to the highest optimism (on the stock market) we've seen in several years. We'll see how attitudes evolve going forward---I suspect that the early January selloff (as modest as it was) might have quelled that cheeriness a bit for now, we can only hope. The fact that Monday delivered a 170+ point decline in the Dow, and Tuesday and Wednesday saw a 200+ point rebound, tells you that---sentiment surveys aside---there's still real money out there looking to buy the dips. At least for the moment...