The stock market’s next step could be its most pivotal

The U.S. stock market’s bulls and bears have for months been an arm-wrestling match with no end in sight. However, whichever side “wins” could dictate the tone on Wall Street for months.

For all the back and forth seen on Wall Street thus far this year, there has been one primary story that explains most of 2018’s trading activity. There are a number of negatives in the market—among them the specter of a trade war, less accommodative central banks, and the fact that gains have come on the back of a few big stocks, as opposed to being broad-based—that have put a ceiling on prices. This ceiling is represented by the record highs the Dow Jones Industrial Average DJIA, +0.91%  and the S&P 500 index SPX, +0.87%  hit in late January.

At the same time, there are numerous positives in the market, including strong economic data, earnings growth, and the growing impact of 2017’s tax bill. These have served to put a floor under equity prices, the 2018 low that was put in shortly after the most recent record.

The result of this is a market that has been stubbornly rangebound since February, with both the Dow and the S&P unable to break out of this roughly 10%-wide spread of prices. Both have been in a correction, defined as a 10% drop without a full recovery from that low, since February, their longest stretch since the financial crisis.

In a sign of how uncertain investors are about the current environment, the AAII Sentiment Survey shows that 32.9% of investors describe themselves as neutral on the market, meaning they expect prices will remain roughly the same over the coming six months. This is above the long-term average of 31%; neutral sentiment has been above the historical average for 20 straight

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