I believe in the coming weeks we are going down because in the last 3 weeks we went up from 3,570 to 3,900 based on a FED pivot scenario that didn't materialize. Looking at the 10Y yield (4,16%) at the very least we will go back to 3,500. End-of-year tax harvesting will put even more selling pressure on the stock market. And let's not forget the quantitative tightening and the oil prices that will probably soar after the mid-term election (when finally the SPR will stop to be drained to such massive extent to keep fuel prices artificially low).
The China lockdowns and the continuation of their zero Covid policy won't help either.
The global recession ahead will cause companies to report lower earnings and revenues in this fourth quarter and the next and we'll have to discount that. The market drop we had until now was due to the interest rates increases and not the global recession…in the next 2-3 months we'll have to front load such a scenario.
In December it seems likely the FED will raise 50bps, which is a lot. I don't see a sustainable rally until at least the FED will pause any rate hike which I think will happen in February.
I expect inflation to drop massively at the beginning of 2023 and will probably turn negative by end-of-summer 2023 sparking a massive quantitative easing to “fix” the recession and we'll get a huge market rally similar to the post-Covid one. But before that the trend is down at least until February…then we'll probably trade sideways until summer and then I expect a big rally with a change in the FED policy.
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