Market Forecast For the Week of April 29, 2024: Desultory Politics And Deepening Deficits Cast A Shadow Over The Bulls

FORECAST: The S&P 500 consolidates early then falls back to 5000 as lower lows and lower highs embolden the bears while rising oil prices take their toll on bullish overconfidence. Valuations are at risk as few companies are growing at high rates and quality of earnings continue to decline, foreshadowing the ineluctable slowdown in consumption to come. Only rising productivity or a rising global economy can alter this descending glidebath, and the strength in the dollar is doing what it takes to to make sure the latter doesn’t happen.

The dollar is rising on the back of strong oil and the relative weakness of Europe, Asia and most every other place in the world. Correlations between oil and the dollar have flipped in recent years and will remain positive as long as the US is a major net exporter of energy. The cultural problems of China and Japan are too deep for their dogmatic and feckless leaders to change, while bright spots like India are few and far between. Global growth has arguably found a floor but has little upside as long as the dollar is rising, and that’s out of kilter with atmospheric equity valuations.

That leaves only productivity to ensure rising profit margins and investment tax revenue to offset limited future consumption and larger deficits. To date the evidence is that AI doesn’t even generate meaningful use cases for consumers let alone a profound revenue stream for all but a handful of technology suppliers like Nvidia and Microsoft. If social cohesion and public polls are any indication, malaise has set in and that can only bolster automation and unemployment simultaneously, cutting consumption at the heart. And as earnings stagnate the markets will adjust to the tune of the bears.

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