Year-end Target (SPX) 4500

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Globally, 2023 should be a transitionary year where SPX enjoys a far better year than 2022.
Most weakness could be concentrated in Q2 before sharp rallies into Fall and a stairstepping rally into year-end. Increasingly, it’s right to expect that markets have made their
bear market bottoms last October 2022.

Two Possible Outcomes:

Base Case- Equity markets turn up sharply in 1Q into mid-March, and pullbacks prove brief before further gains in a stair-stepping fashion to end the year up 15%. In this case, despite a mild late Spring bounce in US Dollar and Treasury yields, this proves short-lived, and no meaningful Equity weakness occurs and inflation falls off steadily all year. The US likely avoids recession in 2023 – YE target 4500
Equity markets falter between March and June and then again in Fall 2023 before rally back into year-end- a choppier sideways year albeit with rally into year-end helping returns. Inflation stays with markets longer than expected given a sharp rally in Energy commodities and both TNX and DXY move back to highs, albeit briefly in 2023. In this case, it’s still likely SPX gains 5-10% but would be not as linear of a rally

Conclusions

Equity markets likely to show a far better first half than many anticipate as historical Pre-election year tendencies look to be directly opposite Wall Street consensus
Volatility likely could materialize from March-May and/or August-October, but 2023 as a whole should be higher by 15% as US stocks respect inflation falling more than the prospect of negative earnings revisions
Energy’s dominance should continue this year, and could be joined by Materials and Industrials, with Technology showing most of its strength in 2H 2023
Growth still under pressure vs. Value but could rebound in the back half of 2023
Small caps have shown some initial signs of bottoming out and both Small and mid-caps might outperform Large caps in 2023
Commodities and Emerging markets could outperform on falling US Dollar
Treasury Yields and US Dollar should fall further in 1H 2023, but look to have a bounce which could take yields higher in 2Q-3Q before weakening into 2024
Commodities outperformance should be led by Metals in 1H and Energy likely also shows a sharp rebound this year
Cryptocurrencies should strengthen with stocks in 1Q 2023 before weakening into Summer. Best buying opportunities on weakness could materialize in May/June

Why Bear Market lows could likely be in place

Momentum and trends remain positive short-term, and not overbought. SPX higher by over 500 points since 10/13 intra-day lows.
Breadth expansion has been robust since October 2022 with >60% of SPX issues above their respective 200-day moving average (m.a.)
Equal-weighted market gauges like Value Line have broken out above downtrends from Jan 2022 and SPX and NASDAQ could accomplish this by end of January
Broad sector leadership has proven impressive, with Equal-weighted Materials, Industrials, Consumer Discretionary, all up more than 15 in % in the rolling 3-month period, outperforming SPX
Technology shows evidence of breaking out of its intermediate-term downtrend, and this should help this sector play catch-up
Cycles bullish for 2023- Both cycle composites along with Pre-election year seasonality show a far better year for 2023 than 2022.
Sentiment still bearish – Despite sentiment having gradually improved in the last month, net Non-commercial S&P Futures positions remain negative and most Strategists have lackluster 2023 targets. Positioning remains very much defensive
DeMark weekly exhaustion “13 Countdown” (Buy) are now in place for QQQ, AAPL, AMZN, MSFT and close for GOOGL
US Dollar and Treasury yields have both turned down sharply, giving optimism that highs might be in place; Most cycles show these downtrends lasting through Q1