Market Forecast For the Week of April 10, 2023: No New Tale To Tell Becomes The Newest Market Mantra As The Bears Bide Their Time

FORECAST: The S&P 500 rallies to 4180 on sustained belief in the improbable, namely that 2024 earnings will grow 12% and render 2023 the year of financial garbage. While the bulls wax lyrical in defending these estimates the substance of their argument rests on lower risk-free interest rates, which I expect to decline further this week and test last month’s lows on both the short and long ends. Until the bears can put forward new arguments about declining earnings quality and a bleak macroeconomic picture the bulls will use declining rates to dominate sentiment. But time is running out as 2nd quarter earnings season begins in earnest this week and by end of month we will have a read on how bad 2023 will be and how much lower valuations and earnings estimates have to decline before a real bull market can get started.

Warnings signs abound about the risky macro picture and can be found both in the nugatory performance of small stocks and globally in the currency and commodity markets. Gold has reclaimed its place as the premier risk-off asset, rallying on the back of declining real interest rates and a moribund $US. Zinc has broken lower and presages low global growth, while EM and major currencies are mixed, indicating that macro traders are uncertain about both growth and the reopening in China. Should the global economy come to resemble the desultory state of global politics the case for exuberant optimism will collapse and with that the equity markets. Expect a retest of the October lows by late Spring.

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.