Market Forecast For the Week of March 20, 2023: A Swiss-Driven Relief Rally Gives The Bears Time To Marshall Their Forces And Retake Control

FORECAST: The S&P 500 rockets higher to retest the 4050 region as relief swells atop the UBS takeover of Credit Suisse. Follows more consolidation until a last gasp rally takes the index close to the 4200 level and sets in train a resurgence of bearish fever. From there the bears will ride wild into the Spring as the near certainty of recession married to higher for longer interest rates becomes apparent with each data point, only reaching a break point when the October lows are punctured.

The takeover of one European bank by another can ultimately incentivize a European banking consolidation that marginally improves the continental economy, and that optimism will help spur the short-term bear market rally we are seeing this week. But Europe has too many other problems to work out in its absurd federalist system for growth to become internally driven and thus robust to changes in the global economy. And now that American protectionism has passed from Trump to this statist successor Biden global trade will be shakier than ever, resulting in weaker global growth. China now becomes a major pole for the entire globe and Xi Jinping’s left-wing perspective ensures this will be a dead weight rather than a motor for the global economy. As the US skids into a credit-driven recession so too will the globe falter and that means financial market confidence will front-run this unhappy scenario and manifest in a retest of the October lows.

From there the key will be whether the Fed actually pivots rather than pauses, as inflation continues to ride on a strong labor market. Only a strong uptick in the unemployment rate can get disinflation through the last mile and that means many months of good data will be necessary before the markets can call an end to this long bear market.

My current positions include a large cash position, 3M (MMM), Pfizer (PFE), and the levered ETF UPRO.