Market Forecast For the Week of September 5, 2023: The Bulls Trundle Along To The Old Highs As The Bears Hunger For More Bad News

FORECAST: The S&P 500 rises to 4600 in fitful fashion as the bulls and bears debate whether robust earnings growth can coexist with high interest rates and a slow-growth China. The bulls continue to win the argument but with less capitulation to amplify the moves higher as most bears like myself have already adapted to the bulls’ dominance. The breakout in commodity prices confirms that China likely maintains positive growth as dollops of stimulus help offset declining public confidence in Xi Jinping’s vision. Ordinarily this would power equities higher but with inflation running above trend and valuations already high the bears make a compelling case that Chinese growth actually keeps inflation hot. That means higher interest rates for longer and makes questionable the consumer’s ability to continue spending as credit card debt, housing and auto debt eventually reset. The likely outcome is that Wall Street earnings estimates come down sharply by October as 3rd quarter earnings come in. For a few weeks more the bulls can confidently buy the dips but the intermediate-term likely finds the resurrection of the bears.

My current positions reflect my near-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.