Market Forecast For the Week of June 13, 2022: A Nervous Fall This Week But Not The Capitulation Bottom Investors Are Patiently Awaiting

FORECAST: The S&P 500 falls to the lows of early May and then consolidates over the course of the week. Pessimism reigns supreme but unless another geopolitical shock erupts investors will calm themselves and make a temporary base while we wait for more news on the trends in the global economy.

A double bottom at 3800 will have the bulls salivating but I continue to expect news from China and elsewhere to give the bears yet more reasons to pile on and force the S&P down to 3700 by late June. Confidence in the Chinese Communist Party is likely falling marginally, but the negative political consequences for Xi Jinping rise disproportionately since his audacious accumulation of power rests on the confidence of the masses. As Xi faces increasing criticism on multiple fronts the Chinese investor faces rising US interest rates that pull the Renminbi lower and incentivize capital flight. I expect Chinese confidence to decline (as measured by equity indices like the Shanghai Composite) and global investors to react by discounting the worst out of the Chinese economy and its rippling effect on the global economy. Xi may be battle hardened but the accumulation of bad policies and a worsening external environment is likely greater than anything he has had to face. The prospect of another Eurasian leader skipping off the reservation will be enough to quash the bulls and send the market to new lows.

And as China goes so goes Asia and the major European exporting powers. Bond vigilantes are already feasting on Italy and sending the BTP/Bund spread back to 2020 pandemic levels. Volatility across asset classes has risen and will likely crescendo this week into a short-term peak, as investors debate whether the global growth slowdown is simply dispiriting or profoundly unnerving. Key to watch will be the action in copper, which I expect to consolidate recent weakness but stay above its old lows. Should copper hold up the S&P 500 will find a base at 3810 and rally later in the week in vain hopes of a double bottom. Further news out of China, Ukraine and other troubled spots over the course of the month will pull the markets down to new lows, and hopefully a true bottom at S&P 3700.

On Friday I added a small position in the levered ETF UPRO, consequently my current positions include a large but slightly smaller cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETF UPRO.