Market Forecast For the Week of December 13, 2021: One Less Brick In The Wall This Christmas, As Investors Find Many Reasons To Climb The Wall Of Worry

FORECAST: The S&P 500 retests its old highs around 4750 then consolidates as it marches toward 4800 by year end. The correction I expected in December was much milder than I predicted and Friday’s close was a strong indicator that investors don’t expect much bad news over the remainder of the month and are looking forward to earnings releases in the new year. The $US is weakening against some key currencies and that’s bullish for the US markets, and where it’s strengthening only those investors impacted by currency effect are concerned, meaning the problems in Turkey, Pakistan and elsewhere are contained. Interest rates are gyrating at low levels and that’s little reason to deter equity investors. Fears of inflation have subsided as the 40-year trend of global capitalistism towards greater choice and competition hasn’t been rebuked by political leaders yet. The market has few worries and can easily climb this wall as we get to earnings season and assess how COVID and its variants have impacted sales and margins.

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.

My current market positions include a large cash position, and the following holdings: Activision (ATVI), Amgen (AMGN), American Express (AXP), Johnson & Johnson (JNJ), 3M (MMM), and a small net long position in the S&P 500 (the levered inverse ETF SPXU and levered ETF UPRO).