Market Forecast For the Week of October 16, 2023: Undigested Bad News Keeps A Lid On Equities As We Gear Up For Fright Night

FORECAST: The S&P 500 consolidates in the 4300-4400 range this week before the bulls give it up and let the index fall as October draws to a close. The flight to quality in response to the war in Israel has kept US equities afloat but this will wear off by late this week on fears of worsening guidance and dampening consumer optimism. Expect the index to make a lower low in the 4150-4200 range by Halloween, before the bulls regain control and rally the markets into Christmas.

The war in Israel has considerable potential to expand and create unpredictable events across the Sunni and Shia world, a fact not fully discounted by investors. Should the Middle East splinter more as the war progresses the prospect for higher oil prices and dampening consumer confidence will weigh on firms and result in negative guidance accompanying earnings reports. The bulls can point to a robust employment picture but as current valuations the market is clearly discounting a scintillatingly bright future rather than an obviously risky one. A true shakeout of the weak bulls this month will reset valuations and prompt cautious investors across the world to pile into equities in November on hopes for a seasonal bull run to Christmas.

My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is largely hedged by an offsetting position in SPXU, which nets out to a long position in equities.