Market Forecast For the Week of April 15, 2024: Downside Volatility Meets Its Match In Upside Volatility As The Middle East Avoids All-Out War

FORECAST: Volatility continues as the S&P 500 rally this morning falters and the index falls to 5050 by midweek before bottoming out and rallying on relief that geopolitical events across West Asia didn’t change the underlying trends. The bulls retake control temporarily on the notion that persistent growth and inflation bode well for corporate earnings that are quoted in nominal terms. But the rally likely ends by Friday around 5171, and the market consolidates as traders gladly embrace the weekend before bracing for important earnings reports and economic data coming out next week.

The markets were spooked last week by the dollar’s rise and its incongruent pairing with rising commodities, which were largely attributed to geopolitical concerns. Both are likely to reverse course unless Iran takes further action against Israel. Sunday’s attack was so inadequate that it’s widely interpreted Iran’s theocracy are too wary of the risks of domestic unrest and a controversial succession to actually provoke Israel, and will simply let Israel suffer global condemnation for its handling of Gaza. The resumption of the status quo can’t be interpreted as bearish unless earnings come in poor, which was feared last quarter but didn’t happen. But the risks of poor earnings remain high and likely persist throughout the year as quality of earnings remains poor. The market has likely escaped a correction this time around but irrational exuberance will eventually meet its necessary conclusion.

On Friday I sold a part of my position in the levered ETF UPRO, consequently my current positions include 3M (MMM), Pfizer (PFE), a smaller and modest position in UPRO and an equal position in SPXU, which nets out to a neutral position in equities.