With the S&P 500 touching a new all-time high, bulls may be dancing in the Street. But bears may have good reasons to stop the party cold.
Jim Cramer has identified 5 compelling reasons why the market shouldn't be this high.
Now, that's not to say the "Mad Money" host is bearish, he's not. It's simply that at all-time highs, pros such as Cramer feel it's prudent to examine catalysts that could trigger declines.
And it seems that there are plenty of negatives lurking out there. Five of them follow:
Valuations are high broadly. "There's no doubt this market's stretching the bounds of reasonable prices," Cramer said. The and that's simply not cheap."
Last year's market leaders are facing headwinds. "The insurance stocks, one of last year's biggest winners, have been miserable," Cramer noted. Also autos and consumer products stocks, both of which performed well in 2013, have been facing headwinds. "That's a sign of outright bearishness."
M&A involves unwarranted premiums. Bears argue that companies are paying excessive amounts to make acquisitions, and that the phenomenon may be a sign of the top.
Froth has returned to the market. That is, bears argue that the valuations commanded by stocks such as Twitter and Tesla are reminiscent of the premiums assigned to stocks such as Pets.com during the height of the Internet bubble. And that ended quite badly. To make matters all the more worrisome, on Monday the Nasdaq hit a 14-year high.
The jobs numbers has been weak for two straight months: "The bulls are banking on these numbers being understated because of the weather," Cramer noted. But according to Cramer's proprietary research, bad employment reports are the worst kind of economic data point for the market. And historically, two in a row is a problem.
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Again, that's not to say Cramer is turning bearish. He's not. He sees many reasons to believe the rally can continue.
For example, "Profits are robust, as are dividends and buybacks," Cramer said. That suggests the market's valuations may not be as stretched as feared.
Also Cramer added the market isn't blindly euphoric. "Have you seen retail lately? The group's been leveled mercilessly," Cramer said. In other words, in some areas of the market sellers are prevailing.
And partisan bickering from Washington has diminished. "Washington's been the cause of every 5% decline from the last three years," Cramer added. And right now the tailwind has died back
Those are all good signs and reasons for stocks to rally further. Nonetheless, Cramer doesn't think the bearish argument should be ignored either.
"So where do I come out? Pretty mixed actually. I think the market's too elevated given the punk employment numbers, the overbought nature of the averages, and the cultish nature of some parts of the Nasdaq," Cramer noted.
"But, make no mistake, stocks still remain the best game in town," Cramer added. "That's undeniable."
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