Market Forecast For the Week of August 15, 2022: The Bulls Take The Market Marginally Higher As Peak Optimism Sets In

FORECAST: The S&P 500 inches higher to 4300 and then consolidates for the remainder of the week, as investors debate whether a soft landing or no landing at all is conceivable for the US economy. As fears of illiquidity resulting from quantitative tightening abate in lockstep with seemingly declining geopolitical risks concerning food and commodity shortages, debt defaults and mass migrations, the bulls power the market just a little higher before deciding how much profit to take out of equities and enjoy while summer lasts.

I see this summer’s great debate landing with resounding pessimism on the bearish side, as the continued high rates of volatility across equity, bond and currency markets forces business leaders to retrench and cut forward guidance. Despite the huge rally in equities since the mid-June lows equity volatility has remained stubbornly in the 20% range, with the VIX trading at slight premiums or discounts to the spot. No matter what happens early this week that volatility will stay high or go yet higher, and only a sustained rally toward the January 4 highs can bring volatility down and convince CEOs that all is well is America.

Downside risks by contrast come from nearly every conceivable angle, from the economic to the ecological to the geopolitical and the cultural, all directly lowering either revenues or margins for large businesses. Small firms have already born the cost of being price-takers rather than makers, and both logic and history suggest unemployment will soon rise to reflect this. But this time markets can’t take solace from a Fed put as the Fed is lined with hawks more concerned with their reputations and the historical precedent of the dysfunctional 1970s than easing the burden on American workers. Rising rates, rising unemployment and high price levels all signal lower sales, lower margins and lower valuations as summer draws to a close.

My current positions are a moderate but relatively large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETFs UPRO and SPXU.