Market Forecast For the Week of July 3, 2023: Bullish Signals Say Go But Fewer People Are Listening

FORECAST: The S&P 500 continues to melt-up but with ever decreasing confidence as volumes decline on the way to touching resistance at 4480. By the week’s end expect the index to hit that ceiling and then swiftly correct back to 4300 and begin a consolidation phase as we await 2nd quarter earnings. Expect those earnings and associated guidance to disappoint as the economy slows and executives realize how much domestic and international politics has vitiated the efficiency of the global economy.

For all the bullish enthusiasm about earnings the trenchant fact is that analysts are still reducing estimates more than raising them. Of the 96 major equities I track only 7 had positive earnings revisions last week while 14 went negative. Since May the score has never netted out positive. The present simply doesn’t warrant economic enthusiasm and that makes the bullish case entirely dependent on 2024. Given the volatile events since 2020, betting on positive things more than a year out out into the future is absurd.

More absurd still is that optimism focuses most intensely on the latter half of 2024, where earnings accelerate from 10% growth to 12%. How earnings can not just rise double-digits but then accelerate while the Fed is reducing liquidity but also keeping rates higher for longer, while the consumer is replacing savings with consumer debt and simultaneously firms are supposedly investing large sums in AI technology is left unexplained. Corporate efficiency in an age of labor hoarding and the adoption of an unpredictable new input that is neither human nor unsentient makes little sense, but that is the nature of melt-ups. Expect the market to come to its senses as earnings reports warrant the common sense arguments of the bears.

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