Market Forecast For the Week of April 24, 2023: Spring Is Here But Nobody Loves A Bear Market Rally

FORECAST: The S&P 500 rises to 4200 and promptly returns to Friday’s close around 4130 as the bulls fail to deter short-selling bears from doubling down at resistance. CEO guidance this week from big tech and consumer names will then determine whether the consolidation marks the beginning of a deep correction or a pause before the bulls retake the initiative and rally the index to 4300.

Should guidance reveal that earnings quality has continued to decline the correction that ensues will waterfall to 3970 in quick order. That will be the key test for whether the bulls are ready to capitulate and let the index retest the October lows. The twin forces of a slowing economy and hawkish Fed haven’t bothered the bulls since October, but three consecutive quarters of quality declines will clearly mark a trend and eviscerate earnings estimates for 2024.

Neutral guidance, however, will signal that earnings quality has bottomed and simply confirms the earnings recession, yielding no new arguments for the bears and resurrecting the FOMO trade. At that point I look for high profile bears to give up the fight and and empower the bulls to take the market higher. Another leg up will mark the end of this bear market rally as there will be no new buyers at the absurd valuation of 18x 2024 earnings, and the bears will then have the advantage of nervous bulls collectively taking profits and stampeding for the exit. The mother of all bear market rallies is now a matter of weeks rather than months.

My current positions include a very large cash position, 3M (MMM), Pfizer (PFE), the levered ETF UPRO and inverse levered ETF SPXU, all of which net out to a modestly long position in large-cap equities.