The S&P 500 Index has broken above all-time-highs.

Many investors see blue skies. Since late-to-the-party bulls are typically the easiest to shake out, any of the following risk factors rising up to challenge the stock market can translate a fake breakout into a fast failure.

Below are 15 risks that I believe investors should be on the lookout for:

Trade War

Fallout from Trump’s trade wars has been felt around the world. In 2018, more than 40% of Germany’s GDP was derived from exports, the most of any major global economy. Now Germany is seeing manufacturing declines. Japan, Russia, and Italy are similarly declining. 

Fitch Chief Economist Brian Coulton reflected that “there can be few precedents since the 1930s of global growth prospects being affected so significantly by trade policy disruptions.” At the IMF and World Bank fall meetings in Washington last week, some members openly noted the pivot in longstanding policy away from open trade maintained since the 1940s, now moving toward protectionism.

Risk 1: Many companies are scaling back their investment plans, something that will have repercussions for years to come. The most important problem remains those factors that we cannot measure – specifically the reluctance to invest. 

Risk 2: This trade war is driving de-globalization, nationalism, and competition. China has created a US $29 Billion semiconductor fund to disentangle themselves from global supply chains and press toward a more isolationist economic model. 

Risk 3: China is also investing in blockchain technology, the innovation behind Bitcoin, which some see as another isolationist move to get away from China’s dependency on the US Dollar. Curious timing how  President Xi advocated for cryptocurrency right after Mark Zuckerberg’s testimony to US Congress. 

Risk 4: 57 fund managers responsible for $800 Billion in AUM across the US, the UK, Europe, and Asia believe that it’s too late for a global economic rescue, according to a Bank of America survey. Heisenberg.  Assuming the major global players do not simultaneously push their economies forward with an investment, the IMF similarly sees the global economy headed downward. The only question for many is whether the downturn morphs into a recession, one where we shouldn’t count on China helping us out of it. 

Risk 5:  Amazon, Ford, PayPal, 3M, Textron, and Caterpillar all lowered their guidance, suggesting the market slowdown is already broad. In fact, while beat rates have been fine this quarter, overall guidance has shifted negatively relative to recent earnings.   

But many companies, like Harley-Davidson, cite tariffs as a reason for weaker performance, and some, like HOG, are developing tariff workarounds. Harley-Davidson will be producing motorcycles in Thailand to ship to the European Union to counteract what they measure as $21.6 million in lost revenue last year. Their CFO John Olin says, “we’re looking at our business with the abundance of caution necessary in an environment like this”.

Repo & The Fed

Risk 6: The structural dynamics of the current short-term repo funding smells of crisis trying to be averted, as massive government borrowing seems to have started to break the existing overnight lending financial system. 

Fed’s massive liquidity injections could make the problems in the short-term funding markets even worse. “The Repo Market Has Been Drugged Into Submission”

“IF FUNDING CONDITIONS WERE TO SPIKE IN A MANNER SIMILAR TO MID-SEPTEMBER BUT PERSIST FOR WEEKS AS OPPOSED TO THE FEW DAYS… THERE COULD BE A BROADER DE-LEVERAGING ACROSS FINANCIAL MARKETS THAT COULD RESULT A MATERIAL TIGHTENING OF FINANCIAL CONDITIONS”. HEISENBERG REPORT

Risk 7: The fed needs to cut rates significantly to eliminate the rate differential, or “spread,” between domestic fed funds and repo, and the effective negative cost of funds offshore. Their liquidity injections aren’t enough to stop the leak into the vast offshore market for dollar funding.

RALPH DELGUIDICE EXPLAINING THAT ALTHOUGH THIS BANK LIQUIDITY WAS, “DESIGNED TO FORCE CASH OUT OF T-BILLS INTO GENERAL COLLATERAL (GC),” MARKET PARTICIPANTS AREN’T DOING THAT. THEY’VE DECIDED TO “PARK CASH IN REVERSE REPURCHASE (RRPS) INSTEAD. BUT PROBLEM ISN’T CASH NOT FLOW UP TO REPO, IT IS CASH NOT FLOWING DOWN TO REPO.”

Short Volatility/Liquidity

Risk 8: This common technique of selling options to generate yield is increasing broader fragility and risk. The Short-Volatility Trade Is Now So Big It’s Starting to Break.

Risk 9: Market liquidity has also been at risk since August. CME’s liquidity tool shows book depth has dropped more severely than February 2018. This “gappy” market we’re seeing is one of the symptoms of dried up liquidity. 

Momentum-To-Value Rotation

Risk 10: Growth-To-Value rotation continues on as it has over the past two months. Morgan Stanley is now warning: Growth Stock Underperformance Just Starting. As this rotation continues to play out, the risk to the Private Equity world of debt and investment speculation increases (think: Softbank and WeWork as poster child).

Risk 11: Private Equity managers won the financial crisis. The risk now: But will they cause the next one?

Impeachment

Risk 12: The Bullish Thesis for markets is that Trump is biding time until just before Christmas to remove tariffs. The Bear Thesis argues that the impeachment narrative should also reach a crescendo about then to dull trade war truce excitement. Timing here is key, of course. Jim Bianco offers multiple impeachment charts, or using Civiqs you can track registered voter surveys. The risk overall has spiked since September. As of October 19: 84% of Democrats, 45% of Independents, and 11% of Republicans support impeachment. 

Even Steve Bannon predicts that “focused” Speaker of the House Nancy Pelosi will impeach Trump in the next six weeks. Under such a scenario, the risk turns to front-running Democrat becoming President and their position on stock buybacks is bearish.

Stock Buyback Ban

Risk 13: The outcry against financialization and the income inequality it produces has picked up a lot of steam since I wrote my article last year, Price Discovery and Stock Buybacks, suggesting this very outcry and a potential hard-left swing toward Warren/Sanders.

High-polling Presidential Candidate Elizabeth Warren has published her opinion on stock buybacks in the Wall Street Journal as recently as 2018. In short: she’ll ban stock buybacks. High-polling Presidential Candidate Bernie Sanders would also ban stock buybacks. (Sanders, when asked to differentiate himself from Warren, clarifies that unlike Warren, he is “not a capitalist.”) 

NED DAVIS RESEARCH MAKES A STATISTICAL ARGUMENT THAT THE S&P 500 WOULD BE “CLOSER TO 2000 THAN 3000” IF BUYBACKS WERE BANNED. 

China Redemptions

Risk 14: China’s stealth redemption of US equities and assets could increase putting pressure on both bonds and equities. There deleveraging is already hurting global trading.

Risk 15: China has also been stealthily accumulating vast sums of Gold. If at any point they want to cause the price of gold to skyrocket, they need only disclose their holdings. (It’s unlikely they will do that while they are still accumulating.) The other consequence would be an “untold disruption in the forex markets – a yuan backed by gold could strengthen significantly.” The result would be a considerable selling off of US Dollars. 

None of these risks are priced in.