Market Forecast For the Week of October 9, 2023: Gruesome Malevolence Against Israel Fuels Volatility On Global Wall Street

FORECAST: Despite the horrific attack on Israel the S&P 500 rebounds from an Monday-morning selloff and rallies to 4400 on the belief that interest rates have peaked along with inflation and wage growth, setting America up for a goldilocks economy as we approach the holiday season. But the downtrend-line from late summer asserts itself and presents the bears an opportunity to debunk the fairy tale and take the index back to last week’s lows and beyond. The bulls likely get another chance but only after earnings season confirms a trough in earnings, breaking the bears once and for all in 2023.

Debt maximization is the real tale describing the economy, where both consumers and the federal government extend high spending by the only means available — borrowing. As long as labor conditions are tight consumers will freely borrow on credit cards if not in housing and auto loans to spend on experiences and durable goods, and as long as the GOP fears spending cuts to entitlement programs Biden will spend freely on Trumpist protectionism. The outcome from both spending impulses is higher inflation, and for a moment last week the bond and equity markets had come around to the possibility of 3-4% inflation lasting through 2024. That still appears the more likely scenario, and if it happens not only will interest rates stay higher for longer but so too will the dollar, bringing down global growth and confidence in valuations.

The bulls will keep challenging the bears to make 2023 just like 2021 but the fundamentals point to 2024 repeating the gruesome performance of 2022. I expect a Santa Claus rally beginning in late October to get the S&P to a double top with the July highs, only to falter as 2024 gives the bulls a gut check all the way last October’s lows.

My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is largely hedged by an offsetting position in SPXU, which nets out to a long position in equities.