Market Forecast For the Week of March 25, 2024: One Way Or Another The Fed Is Going To Get This Market

FORECAST: The S&P 500 declines modestly to 5180 before consolidating as global Wall Street waits with bated breath for Friday’s PCE inflation report. Barring another sign of stagnating inflation in the 3% area, the market picks up by Friday and continues rallying into early April as FOMO guides investors weary of thinking of less convenient macro factors.

Geopolitics marks the worst of the macro factors that investors seek relief from, but from which there is no escaping. The positive action in gold and oil and muted action in other key commodities point to the bearish bets some investors are making on the outcome of the Eurasian wars and the remaining elections. The rise of oil and gold despite weakening emerging market currencies and the Chinese Yuan signal not just geopolitical worries but the other major factor, namely the confidence differential between economic growth in the US and practically every other nation.

Should US growth turn out to be more nominal than real then a major valuation correction will be in the works, as interest rates will rise and pull money out of equities. The floor will be at least 5% lower in the near term, possibly much lower if geopolitics serves up more nasty news. But even if this Friday’s report shows disinflation continues apace along with robust real economic growth then it’s just a matter of time before a liquidity drainage tips equities over the edge. The Fed signaled last Wednesday that at the very least $400bn is coming out of global liquidity, but more will come out if banks can handle it. Macro factors again explain the Fed’s intention to pull the punch bowl away from the market’s party, as the Biden administration and its European, Japanese and Chinese counterparts have no ideas about dealing with geopolitics other than spending more money. Corrections are in the cards this Spring and not even comically bizarre AI programs can keep Wall Street spirits higher for much longer.

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