After 67 years of publication, Mad magazine announced this month that it’s shutting down. The digital era has been brutal to a bevy of beloved magazine brands.

As a smart-alecky suburban teen growing up in the 1960s and early 1970s, I loved the subversive lunacy of Mad. The magazine told the truth about social hypocrisies, in savagely funny ways.

The stock market’s surge to record highs last week, despite mounting risks, reminds me of the catchphrase of Alfred E. Neuman, the gap-toothed mascot of Mad magazine: “What, me worry?”

Prudent investors should actually show greater worry these days, as dangers worsen at home and overseas. But you wouldn’t know it from the bull’s relentless run.

Hopes for monetary easing — not just in the U.S. but also in Europe — propelled stocks to dizzying heights. The Dow Jones Industrial Average last week closed above 27,000 and the S&P 500 closed above 3,000, new milestones for the indices.

A key catalyst for the upward surge was Federal Reserve Chair Jerome Powell’s testimony before Congress last week. Powell suggested that the case for another rate cut had gotten more compelling, cheering investors.

The Fed’s counterparts at the European Central Bank suggested in June that further stimulus is in the cards for Europe’s economies, due to sputtering global growth and the damage from tariffs.

By the market close last Friday, the weekly gains for the three main U.S. stock indices were 1.5% for the Dow, 0.8% for the S&P 500, and 1.0% for the tech-heavy Nasdaq. Year-to-date gains for the indices are 17.2%, 20.2% and 24.4%, respectively. The bears have egg on their faces, but this decade-long bull market can’t last forever.

Yes, you should worry…

Alfred E. Neuman (pictured) is fictitious. Market risks are not.

Economic growth continues, in the not-too-hot, not-too-cold “Goldilocks” mode that Wall Street prefers. The latest jobs report for June was robust and Powell keeps hinting that another rate cut is forthcoming. So why worry?

Well, for starters, second-quarter corporate earnings season is about to kick into high gear and the expectations are troubling.

Analysts expect second-quarter earnings per share (EPS) of the S&P 500 to show a blended year-over-year decline of -2.8%. The negative projection follows a 0.29% EPS decline in the first quarter. An earnings “recession” is defined as two consecutive quarters of declines. The consensus also calls for negative earnings growth in the third quarter.

As Wall Street’s attention turns from generous central banks to stingy earnings, volatility will probably accelerate. Each earnings miss is likely to exert a disproportionately negative influence on the stock market.

To be sure, Powell last week described the economy as “in a good place.” Underpinning economic growth and in turn the stock market has been the resilience of the consumer.

Read This Story: Will The American Shopper Keep the Bull Alive?

The current economic expansion, now the longest in U.S. history, has been fueled in large part by steady consumer spending, which accounts for 70% of U.S. gross domestic product (GDP).

However, trade tensions are a worsening headwind. Tariffs undermine business investment, disrupt tightly integrated supply chains, and raise costs for businesses and consumers. According to the Organization for Economic Co-operation and Development (OECD), estimated world trade growth for 2019 has fallen to 2.1% in 2019 from 3.9% in 2018. The OECD cited tit-for-tat tariffs as the major culprit.

As I’ve repeatedly warned you, President Trump is making the trade war a central narrative in his re-election strategy. Trade tensions will persist until the 2020 election and perhaps beyond.

Additional risks abound, including the Brexit quagmire, ballooning debt in major economies such as Italy, and an overall economic slowdown in China.

Investors are setting themselves up for disappointment. Projected corporate earnings are on a downward slope and there’s a good chance that the Fed won’t cut rates at its next meeting this month.

Keep your eye on the hard data that’s scheduled for release in the coming days. We face a particularly busy week of economic reports; any disappointments could send this overvalued stock market tumbling.

The upshot: Stay invested. There’s no reason to run for the hills. If you get too fearful, you’ll leave money on the table. This bull market could have further to run; it already has made chumps out of the bears.

But re-balance your portfolio, with a greater emphasis on safe havens. Elevate cash levels; a sensible percentage in your portfolio right now is about 15%. We’re in for sharp sell-offs during the rest of this year, as investor hopes collide with reality. Keep your powder dry for bargain hunting.

Morgan Stanley (NYSE: MS) recently downgraded global stocks and projected “poor returns” over the next year, largely due to the trade war and softening corporate earnings. Morgan Stanley’s chief equity strategist predicts a 10% correction in the stock market during the third quarter.

Savvy investors know that corrections bring opportunity. If Morgan Stanley’s prediction comes to pass (and I think it will), many overpriced stocks that should be in your portfolio, but which currently are too pricey, will end up on the bargain shelf.

Several high-quality utility and real estate stocks appropriate for the late-stage of the economic cycle are sporting excessively high valuations, as investors flee to safety and bid up their prices. But in a correction, their prices are likely to become reasonable again.

The energy paradox…

The energy sector is another appealing late-stage “defensive” play, but the best opportunities are in the midstream (transportation) and downstream (refining) sectors. The upstream sector (production) faces difficulties.

Therein lies the paradox: oil demand continues to rise around the world, but overly ambitious producers are pumping crude at a pace that outstrips demand, which in turn squeezes their margins. The share prices of producers are under pressure. However, pipeline and infrastructure companies enjoy long-term contracts and refiners make greater profits when their crude inputs are cheaper.

Regardless, uncertainty will roil the energy patch into the foreseeable future, as supply stays out of whack with demand. Price equilibrium continues to elude U.S. benchmark West Texas Intermediate (WTI) and international benchmark Brent North Sea crude. WTI and Brent last Friday closed at $60.23 per barrel and $66.89/bbl, respectively.

Bank of America (NYSE: BAC) economists recently predicted that oil prices could plummet to $30/bbl, if the U.S. and China don’t reach accommodation on trade. For oil producers, the break-even point is roughly $40-$50/bbl, depending on the oil producing region.

The International Energy Agency (IEA) predicted this month that the world faces a massive oil glut in 2020, exacerbating the surplus we already experienced during the first half of 2019.

The IEA cited prolific North American shale production as the major reason. The persistent boom in areas such as the Permian Basin in the southwestern U.S. is outweighing factors that would ordinarily keep supply in check, such as OPEC’s decision last month to extend its production curtailment agreement to March 2020.

However a bullish development for oil prices occurred this past weekend, as Tropical Storm Barry pummeled Louisiana and reportedly cut U.S. offshore oil production by 73%.

In addition to the U.S.-China trade war, another wild card is the threat of military conflict in the Middle East. Analysts expect Iran to escalate tensions with the U.S. in the coming days, as Tehran toughens its rhetoric and threatens to increase its production of nuclear materials.

The Trump foreign policy team is dominated by hawks and how they respond to Tehran’s provocations is anyone’s guess. These geopolitical risks won’t abate anytime soon, especially with the looming 2020 elections.

In the conditions I’ve just described, you should start rotating toward value plays in defensive sectors and avoid the mega-cap stocks that have already posted huge gains. Meet risks head-on by adjusting your portfolio…before the market goes “mad.”

Got a question or comment? I’m only an email away: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.