Market Forecast For the Week of May 13, 2024: The Bulls Stay On The Dancefloor With A Less Than Lustrous Goldilocks

FORECAST: The S&P 500 challenges the old highs at 5264 before consolidating again into the trading channel begun since the correction abruptly ended in April. The bulls are amped to buy the dip if and when the index hits support at the bottom of the channel as they firmly believe in the modified goldilocks scenario the Fed is pitching in this election year.

The Fed has talked a good game about reducing rates while subtly pulling back from any action this year, largely to keep political critics at bay. Since disinflation is unlikely to restart given strong spending and a healthy labor market the Fed in reality has little desire to cut and can rely on benevolent reticence from Biden, given his deep need to quell inflation to ensure his reelection. For the bulls these delayed interest rate cuts matter much less then even they expected, since strong growth and a slower path of 2% inflation means nominal GDP stays strong and that can help corporate revenues, particularly for the megacaps.

The only crack in the bat is that a strong equity market can keep spending well above normal and thus lead to prolonged inflation, working off consumer habituation to constant price increases. Even the bulls can’t adroitly answer how more capital expenditures on AI and more infrastructure spending can take prices down. But since a rate hike is unlikely in this election year the bulls are happy to dodge that question and instead make fast friends with the trend in equity prices. Expect new highs later in the month as long as oil prices remain under control and Nvidia doesn’t disappoint on its earnings call.

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