Market Forecast For the Week of November 28, 2022: Warm Weather Nurtures The Bear Market Rally But Awareness Of Long Winter Months To Come Is Brewing

FORECAST: The S&P 500 rallies through its vaunted 200-day moving average all the way to 4120 where it encounters stiff resistance at the trendline that marks the upper bound of the year-long bear market. From the there the index drifts lower as short-term interest rates simultaneously move back toward the early November highs. By mid-December the bear market resumes with full force as Wall Street analysts capitulate and lower profit estimates amid rising volume on the selloffs.

The bear market remains alive because profit margins and sales are slated to fall due to macroeconomic trends that yield declining consumer confidence. Consumption drives the American economy and the vast middle class is staring at accelerating layoffs, real wage declines, inadequate social security and fixed income and high credit card interest payments. The only succor comes from modestly declining rents but that affects only new leases: overall rents are higher by 5-7% year-over-year since rents only began declining in August. Meanwhile home ownership affordability keeps declining due to higher mortgage rates that more than offset declining home prices. So both existing homeowners and buyers lose out and that can only lower consumption spending over 2023.

Global Wall Street presents another confidence destroyer since there are few bullish voices and investor wealth has cratered due to simultaneous bear markets in equities and bonds. Fears of financial contagion remain high due to Credit Suisse’s dramatic problems and the ongoing risks of undercapitalized derivatives markets and hyperactive ETF traders. The tense situation in China could amplify financial risks if declining confidence leads to capital outflows that pressure the Asian dollar market at a time of declining dollar liquidity because of the Fed’s tightening. The lull in the storm that began with terrible October CPI report is about to pick up with colder weather and send the S&P right back to its October lows.

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