Market Forecast For the Week of October 17, 2022: Autumn Leaves Start To Fall On The Bulls As CEOs Banish Memories Of The Goldilocks Economy

FORECAST: The S&P 500 gyrates wildly but goes nowhere as investors parse corporate earnings reports for a real-time read on the global economy. Upside caps at 3800 while the downside rests at 3500 barring a Lehman moment or geopolitical disaster. Only ringing CEO forecasts can alter the overall bearish trend, but few will challenge Jamie Dimon’s staccato warning of fragile economics across the globe. The consolidation ends next week as downward earnings revisions start Halloween a few days early for the bulls and push the S&P down to 3400.

Jejune optimism characterizes the bulls and rests on heavily bearish positioning and remote odds of a Fed pivot or policy reversals at Central Banks who have yet to raise rates. Earnings revisions have exploded to the downside and remove the valuation case entirely for the bulls, leaving only hopes of concurrent policy pivots across the world. Other far-fetched scenarios that turn the tide include a retreat by Putin in Ukraine and simultaneous liberalization of the Russian state or a quick and clean revolution in Iran that brings new oil to the market and hastens global disinflation. More likely cracks appear in obscure corners of the financial marketplace and geopolitical earthquakes thrust uncertainty above today’s barely tolerable levels. A breakdown in derivatives clearinghouses or the vast ETF marketplace or on the securities lending and bond trading desks of Credit Suisse are all realistic scenarios that would crash the S&P through Thursday’s lows.

Barring a Lehman moment equities resume their stairstep pattern by month end on the realization that American interest rates have nowhere to go but up and will carry the $US will them. Inflation in the mind of consumers is baked in until the jobs market breaks and reduces demand concurrent with a surge of new workers desperate to replenish their balance sheets as the outlook grows murkier. Consecutive inflation prints and payrolls reports showing dropping demand and increasing supply are the only catalysts for a Fed pivot and a consequent bottom in equities.

My current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the inverse levered ETF SPXU, all of which still nets out to a meaningful short position in equities.