Market Forecast For the Week of April 22, 2024: The Dollar Isn’t What It Used To Be And The Bears Can Bet On That

FORECAST: The S&P 500 rallies early this week but then reverses course and bottoms around 4930 by Wednesday, only to rally again into Thursday as strong earnings from the Fab Five catalyze a resurgence of bullish confidence. From there the market takes its cue from the price of crude, as Texas Tea holds the key for the both the dollar and US election, and in turn the global economy and multinational profits.

Last week saw a continuation of the abstruse dynamics that have confounded the bears and many bulls alike. Despite high real interest rates and a recovery in supply chains and diminishing confidence in China the rate of US inflation persists well above normal levels, in turn keeping interest rates higher for longer. While this has taken a toll on most firms’ profits the largest firms across the US and Europe have confounded expectations and posted mighty profit growth, fueling a unique bull market where high real interest rates are harmless for megacap stocks until suddenly they aren’t. The recent correction has been attributed to the backup in rates but I believe it was caused by the rise in oil and the dollar and geopolitical stress, which likely continue in this election year.

Since 2021 the dollar has moved more in tandem with commodity prices than inversely, departing from decades of conventional wisdom. As the US became a major net exporter of energy the global economy has changed to accommodate the new supply, resulting in the economic volatility as higher oil prices exert a double whammy on most nations. Not only do energy costs rise for most nations when the price of crude oil rises, but so do the prices of any import that is invoiced in dollars, which is generally considered half of global trade. Since few nations produce every type of commodity, a general price rise in commodities results is a drop in growth and rise in inflation, given vent to the fears of a stagflationary future. The bears have been betting on this downturn since October 2022 and it likely comes to fruition as geopolitical and economic volatility collide in this mega-election year.

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