Market Forecast For the Week of June 26, 2023: Sober Nocturnes By The Bears Will Soon Be Drowned Out As The Bulls Bang On The Drum Straight Through To Earnings Season

FORECAST: The S&P 500 falls modestly toward support levels around 4300 before resuming the melt-up towards 4480. Temporary bullish exhaustion spurs the bears to capitalize on murky geopolitical events but with no new tale to tell the bears quietly fizzle out at support, setting the stage for the charivari of FOMO traders to take equities still higher into the valuation stratosphere.

The bearish case rests on negative near-term earnings trends and negative intermediate-term cultural and geopolitical trends that lay waste the idea that high leverage should marry high valuations. Commodity, currency and fixed income markets are all pointing toward marginal global growth yet equities are blithely ignoring macro themes are riding high on robust earnings estimates. Low and sober global growth make high leverage exceedingly risky and this demands low valuations, precisely the opposite of what equities are presenting. But the bears have made this argument since October and the staleness works against them until new data come out.

That data will be revealed next month. Indebtedness among moderate income consumers, real estate firms, sovereigns, shadow and commercial banks is well known but less remarked on is the growing leverage in trade finance that afflicts large firms. The bears need to make the case that firms are overextended given negative socioeconomic trends but this won’t be possible until earnings season begins in earnest in July. Til then the FOMO trade reigns supreme and will lay waste all premature bearish attempts to talk sense to immature investors and software-driven investment accounts.

My current positions include 3M (MMM), Pfizer (PFE), and a large position in SPXU, which nets out to an extremely short position in equities.