The stock market fell slightly on Tuesday as it prepares for the Fed to hike rates on Wednesday. In this article, I will discuss the latest changes to the macro environment, namely the decline in sentiment surveys and the increase in the producer price index which may soon reverse because of falling oil prices. Bull markets usually end when they run out of buyers, not because of bearish short sellers. The shorts have been claiming stocks have been overvalued for a while. The bearish case may have been reasonable, but the bulls always had a counterclaim why stocks should rally in the short-term. Their arguments are now starting to wear thin. The Fed is hiking rates, the ECB is about to start tapering its QE program in April, fiscal policy won’t be there to save the economy because the GOP is stuck on healthcare, and corporate profits aren’t going to grow that fast.

Even buybacks won’t be able to save the market. As you can see in the chart below, the last 12 months of the top 500 net buybacks excluding financials has plummeted since 2015. Buybacks stopped increasing when earnings stalled in 2015; they’ve fallen recently because interest rates have risen which means firms can’t borrow money cheaply to buy back their stocks. This will hurt EPS growth, putting more pressure on revenues to drive profit growth.

Besides the Fed and ECB taking their feet off the gas pedal, Chinese corporate leverage is also declining. The Chinese economy has been built on an unsustainable expansion of debt. The debt metrics have become so unbelievable, it makes you wonder if the rate of increases can defy gravity. It turns out the debt Chinese firms can take on does have a limit as it has been falling quickly since 2016. As you can see in the chart below, the correlation between Chinese corporate leverage and the MSCI World Index is 0.74. The Chinese debt has been the fuel for the bubble. The chart has the MSCI Index lagged by 12 months meaning the latest crash in Chinese corporate leverage is predicting a decline in the future.