The Market: The Path Ahead
A preliminary look at the SPX path to 12/31/2024 and a more tactical view of the next two months.
As discussed yesterday in preparation for tomorrow’s TMC space, it’s time to zoom out and look toward the end of 2024 to formulate a higher time frame outlook for stocks and bonds with the following three phases in mind:
I’m not going to formulate a detailed outlook here today, as I want to focus on the corrective phase the market is currently in - but preliminarily I could see the following path for the S&P 500 looking out to 12/31/2024:
2H23 Reacceleration: Retest October 2022 low of 3490 in September/October on a breakout in UST 10s to above 500 bps, followed by a relief rally into year-end on a stabilization of long-term rates and not-yet-decisively-negative economic data.
1H24 Recession: 12.5x cycle-peak EPS of $205 (the current estimate1 for LTM 3/31/24 as-reported EPS), or circa SPX 2600 is my recessionary trough target. Far and away the biggest wildcard for where SPX troughs in recession is what FED and Treasury do with over $2 trillion of potential QE stored in the RRP and TGA. If $2 trillion of QE comes into financial markets while the unemployment rate rises to 5%, perhaps SPX never falls below 3000, or perhaps not even below the October 2022 low of 3490.
2H24 Election: Obviously anything can happen, but at this point I have very high confidence 2H24 will be extremely equity market positive as a result of Yellen and Brainard gunning markets ahead of Election Day. This has long been my projection, but now everything is really starting to line up for the 1H24 weakness that would prompt an aggressive policy response.
I will detail my outlook to 12/31/24 in the coming days and weeks. Today I want to focus more tactically on the outlook for September/October, historically a very dangerous period for financial markets.
September/October Danger Zone
On July 1 with the S&P 500 near its YTD high of 4460, I discussed the following three scenarios for 2H23: