Through December 23, the S&P 500 index had advanced nearly 11% year-to-date, to 2,263.79, surprising many and surpassing the bulk of hedge funds and other actively managed accounts. But how long will the streak of record highs continue? And what are the market's prospects for 2017?

"We expect the 2017 stock market to be bumpier than it was in 2016," says Edward Kohlhepp Sr., owner and president of Kohlhepp Investment Advisors in Doylestown, Pa., and head of its investment committee.

That's partly because Kohlhepp attributes 2016's outsized returns to a particular confluence of factors: the Federal Reserve held off raising rates until late in the year, and the rise of Donald Trump led to hopes of tax reform, a loosening of financial and corporate regulations, and a healthier GDP.

Whether or not all that comes to pass remains to be seen, of course. "The Trump rally is showing signs of fading," says Kohlhepp. But while he does not classify the current high market valuation as a "bubble," he notes that he would not be surprised by a 10 percent to 15 percent correction.

Others are hedging their bets. "I think it's prudent now to have a moderate mix of cash, short-duration fixed income, and higher quality unlevered businesses that aren't egregiously overpriced," says Mark Travis, co-founder, CEO and president of Jacksonville Beach, Fla.-based Intrepid Capital Management, which has assets under management of about $800 million.

Travis is also senior portfolio manager of the $400 million Intrepid Capital Fund (ICMBX), which has returned nearly 15 percent year-to-date, outstripping the broad market benchmark by four percentage points.

Going forward, he says he will maintain a balanced approach. "I'm kind of watching and waiting," says Travis.  "I won't say we're in a bubble, and I won't say I'm a pessimist. … But I'm not wildly optimistic that there are a lot of high-quality businesses on sale right now." 

With the market trading at 20 times earnings, he says he prefers senior debt that yields 5% or more.

Still, there are some who remain cautiously bullish. "Though market valuations remain at the high end of historical ranges, the U.S. equity market continues to be biased higher," says Joseph Amato, president and chief investment officer of equities at Neuberger Berman in New York.

In part, Amato cites the promise of the new administration. "Corporations stand to profit from a more business-friendly landscape marked by proposals to lower taxes, reduce regulatory burdens, and enact robust social spending programs," he says. "Small businesses tethered to U.S. growth, in particular, could thrive, as they may benefit from those aforementioned factors without also being punished by the anti-trade rhetoric impacting large multinationals."

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