Market Forecast For the Week of March 4, 2024: The Bulls Relax In Cruise Control While Keeping A Wary Eye On Gas Prices

FORECAST: The S&P 500 rises modestly higher to 5170 as the bulls listen closely to the Fed’s Congressional testimony this week and digest a light plate of earnings from retailers, tech firms and second-tier industrials. Volatility drowns this week and helps option traders push the markets gently higher, but likely returns next week with inflation and employment reports that will tell the real story behind corporate profits.

The reason the bears can’t make anything of high valuations is the resilience of earnings estimates. Analysts still expect earnings to rocket in the second half of 2024 and into 2025, despite the low quality of recent earnings and intractable geopolitical risks. The only downside the bulls are willing to acknowledge is higher oil prices, which are following gold into an uptrend. If oil tops out this week then the S&P will continue on cruise control but if oil rallies like it did Friday then equities will likely top out in front of next week’s data. Absent a big move in oil the bullish thesis of accelerating earnings and productivity will have little to antagonize it unless the data proves otherwise. Declining volatility will then be the biggest bogeyman, as options speculators drive the equity risk premium to zero and make institutional investors unwilling to buy more until a major correction resets forward return expectations.

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