Market Forecast For the Week of May 30, 2023: Another New High This Week As The Bulls Push The Envelope

FORECAST: The S&P 500 rallies to 4308 and then promptly reverses course in a violent correction back to 4200. From there another rally girded by flamboyant FOMO and YOLO leads to a new high at 4340, and marks the end of this bear market rally. All now depends on the Fed’s statements following their decision in the second week of June. While the bulls hope the Fed validates their absurd beliefs about fothcoming rate cuts I expect the Fed to voice hawkish concern as economic data warrants skepticism re the course of disinflation, leading the market to careen lower as June enfolds.

Underlying the Fed’s stance is the historic disconnect between rising interest rates and strong hiring. Businesses continue to hire in the services sector in contravention of both the Fed’s tacit desires and their own limited confidence in the foreseeable economic future. Limited labor supply, Biden’s push to nearshore production and the gradual depletion of consumer savings mean businesses are maxing out on employment in order to satisfy demand, keenly aware of awful sociopolitical trends that presage tougher times ahead. The Fed will eventually win the fight and dampen the housing and auto markets while lower savings will eventually tap out both services and experience consumption, leading to a recession and marked pullback in earnings.

The bulls are wildly unprepared for such a scenario as earnings estimates still project 11% growth in 2024, even as firms deal with rising inventories and debt. 2nd quarter earnings will bear out what retailers have recently revealed and the markets will begin to discount this as the quarter ends this month. A new bull market can only begin with a retest of the October lows, and that will happen quicker than the current crop of bulls care to admit now that they’ve pushed megacaps into a bubble.

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