Market Forecast For the Week of December 11, 2023: Global Investors Board The Groovy Train Of Equities

FORECAST: The S&P 500 rallies strongly into darkening December as foreign investors join the euphoria over America’s productivity and growth spurt as told by recent government statistics. The only factor restraining bubbling euphoria is declining global growth expectations, but with foreigners hedging their megacap tech exposures the dollar will hold steady and give the bulls hope that another fall in the dollar is in the works, contingent on a little help from friends at the Fed.

But the potential for the global order to diverge from this bullish thesis is too profound to let the market rally beyond the holidays. The Fed is likely not to cooperate, as the recent spurt in liquidity just means more tightening down the road, and the robust jobs market offers them perfect cover to keep rates high and reward savers who’ve suffered so long under the old zero-interest-rate policy. The dollar likely stays strong along with the Fed. And with both parties fielding unpopular candidates the Fed will feel little pressure to bend to political grandstanding, instead buying security that the Arthur Burns experience will not be repeated this time around.

Worse still are geopolitical storms that likely throw down unforeseen calamities and push investors into the safe haven of the dollar and gold, wrecking global economic growth forecasts and pulling down equity valuations across all markets. A retest of the October 2023 lows is guaranteed based on liquidity factors alone, but should anything go wrong politically a retest of the 2022 lows will finally arrive and reward the long-suffering bears.

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