Market Forecast For the Week of March 18, 2024: The Bulls Discount All The Bad News That’s Fit To Print

FORECAST: The S&P 500 rises to 5220 as the bulls continue fighting the Fed and demanding interest rates cuts in this election year. The Fed continues talking about both sides of its mouth, voicing a political message for interest rate cuts this year and an economic message that says no cuts until the inflation mindset is forever wiped out. With the inflation-disinflation debate bereft of data until late in the month the market sides with the bulls as FOMO rules the day yet again.

The Fed remains committed to wringing out inflation since commodity prices verify what the price indices have been saying of late, namely that disinflation from 3% to 2% will take months to play out. Any let up now could yield rising inflation since the real economy is already getting a boost from the wealth effect of high equity prices and rebounding housing prices. And the Fed can do little to affect oil prices, which are on the march again. While rising gasoline prices have a regressive effect on spending they positively impact inflation in the near term. Deteriorating geopolitics has failed to touch the bulls until now, but if oil continues rising it will eventually catalyze a major correction unless the Fed comes to rescue.

And with Fed liquidity perversely growing despite QT, the odds are the Fed not only refuses to offer the market a put option but cuts its cash flow as well. When that happens the comical optimism that greets headlines regarding climate change, social polarization and anti-liberal election victors will suddenly deflate. The bull market is still intact for another few percentage points but macro factors are setting up a major correction that retests the October lows of 2023 if not of 2022.

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