Market Forecast For the Week of November 22, 2021: TINA Is Stiil Married To FOMO But A Trial Separation Is In The Works Come December

FORECAST: The S&P 500 makes marginal new highs this week then consolidates over its November trading range (4600 - 4720) until geopolitical events likely cause a correction in December. Rising earnings estimates despite the fall in interest rates and oil prices is leading otherwise wary investors to embrace TINA and succumb to FOMO as the seasonal Santa Claus rally proves too difficult to resist. Low volumes through the Autumn mean that the current rally fails to go parabolic and sets up for consolidation as we enter December.

While the trend in earnings estimates has been volatile of late it remains positive among the 100 leading stocks in the S&P 500. Earnings growth for 2021 is expected to be about 22% while next year growth slows to a respectably normal 7%. About half of the companies were able to improve their margins in the 3rd quarter measured against 2020, an amazing feat given supply chain issues. A quarter were able to increase margins sequentially, equally amazing but also down from the number in the 2nd quarter (33%). Maintaining margins is key to hitting the 7% earnings target next year, as this would imply similar returns to equities if interest rates stay tight within their current ranges. The bulls are betting this happens since inflation expectations moderated last week despite the slew of bad current inflation data.

Financial risk remains a concern but dollar shortages have eased. While China’s property crisis hasn’t triggered any fallout among global banks yet, cross-border bank claims to the non-financial private sector (e.g., real estate) are high according to the most recent BIS data. So the global financial markets need the Chinese Communist Party to finesse the troubles at Evergrande et al, which the CCP is incentivized to do since Chinese retail investors have money at stake. But overall the most recent BIS data shows a decrease in Q2 2021 of $308 billion (although due to comparisons with Q2 2020 it registered as a slight increase of 2% year on year), indicating contagion risk is now only a modest concern. EM debt repayment remains murky for badly run nations (e.g., Turkey, Argentina) but moderate global growth is buoying export confidence in major EMs. Fortunately there has been no major chatter regarding concentration risk or counterparty risk at large financial institutions.

On Friday I sold my position in Pfizer (PFE( and established a new position in American Express (AXP); my other current market positions include a large cash position, and the following holdings: Activision (ATVI), Amgen (AMGN), Goldman Sachs (GS), Johnson & Johnson (JNJ), 3M (MMM), and a small net long position in S&P 500 (the levered inverse ETF SPXU and levered ETF UPRO).