Have We Seen The Top Of The Stock Market? Probably Not

Summary

It's been an ugly week, but we've seen uglier. Market down 5 of the last 7 days.

Let's face it - this bull is tired. It needs fuel (a catalyst) if it's going to keep going higher.

After the rate cut was announced, there was nowhere to go but down. Buy on the rumor and sell on the news.

I frequently poll the smart money and they tell me that risks are high and playing smart defense is called for.

It's been an ugly week, but we've seen uglier. Market down 5 of the last 7 days. But we're only 2.4% below the most recent high water mark. In the grand scheme, that's nothing. I expect the bulls to mount another charge and once again take the high ground. But let's face it - this bull is tired. It needs fuel (a catalyst) if it's going to keep going higher. I don't see a catalyst out there. Do you? Leave a comment below if you do.

The Fed Cut Rates

The bulls got their wish when the Fed cut interest rates, so why did the market sell off? I think it's because they were expecting a bigger cut, and they had priced that in to the recent rally to new highs. After the rate cut was announced, there was nowhere to go but down. Buy on the rumor and sell on the news.

Trump Just Escalated the Trade War with China

Is Trump playing a game of chess with Xi, while Xi is playing a game of checkers? Or is Xi playing 3-dimensional chess? The market has weighed in and it appears to believe the latter case. Can 100 million investors be wrong? Sure, but not likely.

The Global Economy is Slowing

The most recent report on U.S. GDP growth was disappointing. When you tune out the political spin, you get to the facts. Growth came in weaker than expected this quarter, and the revisions to previous quarters were negative. Even China's growth is weak - barely above the pace required to support employment and corporate earnings.

Earnings Estimates Are Dropping

The above chart from Zacks Investment Research illustrates the declining trend of analysts' earnings expectations for the 3rd quarter. Not very encouraging, IMO. And not supportive of a healthy bull market in stocks.

​The Debt Bubble

The U.S. Congress just passed a massive 2-year spending bill that Trump is expected to sign into law. There are two camps on this issue. The "deficits don't matter" camp and the "fiscal responsibility" camp. Which camp are you in?

As of today, the U.S. National Debt is $22.5 trillion. The interest on that debt is $675 billion per year. How significant is that expense? It's the 3rd largest budget expense after social programs and defense spending. And it's quickly gaining ground.

Two Charts On Our Debt Servicing Burden

Final Thoughts

This ageing bull market could go on for several months or even longer. But the smart money is positioning their portfolios to include the chance that a recession and bear market are closer than the optimists assume.

I frequently poll the smart money (my contacts on trading desks, portfolio managers, analysts, and market strategists who I've known and worked with for many years) and they tell me that risks are high and playing smart defense is called for.

As Bob Dylan once said, "Don't Say I Didn't Warn You When Your Train Gets Lost."

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.