Market Forecast For the Week of December 4, 2023: The Bulls Break For Sobriety Before Finishing The Year With Inebriate Flourish

FORECAST: The S&P 500 consolidates early in the week but then rallies to cross 4600 as the Santa Claus rally gathers steam into Friday’s employment report. Should that report reveal modest wage growth along with robust jobs expect the S&P to careen toward 4620 as the bulls salivate about breaching the 2022 all-time market high before the first alleged Fed rate cut in 2024.

But with no particular reason to cut rates the daunting fact for the bulls is that the Fed may not comport with market demands. Services inflation remains well above target and the wealth effect from rising equity, bond and commodity markets can only mean more spending and likely additional price pressures. Since the Fed can rest on the unusual achievement of raising rates severely while avoiding any kind of economic slowdown they are highly unlikely to cave into pressure from either investors or politicians at this point. Only a profoundly weakening economy could force the Fed’s hand and that sadly would also force the bulls to reckon with declining growth expectations, destroying the case for rising valuations and a 2024 bull market extension.

Either way the bulls are hoping for a goldilocks scenario that history and economic logic militate against, leaving 2024 a potentially gruesome year for the nation’s fortunes. For now the bulls all but have it made but an eventual retest of October lows from years past will haunt them as polarized politics rears its nasty head in 2024.

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