You can expect a lot of volatility.  The market, when confronted with negative spread scores, as reflected in the Risk On-Off Model, always trades towards at least x15 forward earnings, which at the moment is around 2625 SPX. Expecting a range between x15 and x16 forward earnings (2625-2800) is about as good as you can hope for over the next few weeks, until and IF the spread scores of the Risk On-Off model improve.  That is the best and my base case scenario. The worst case scenario is a sustained break of the x15 forward earnings curve, which at this moment, would be shocking as it would imply market expectations for a full blown recession. I currently see no reason for that, but odder things have happened in the past.

Owning defensive equity sectors and being overweight the belly of the US Treasury curve (3-6 years) is the right play, until the spread scores start improving, which you will be able to see for yourselves, day in and day out, should it happen. That will be the time to move into aggressive sectors (XLK).  Too early still.  High beta stocks could get SUBSTANTIALLY worse before they are ready to rally again.

 

A detailed video of reasoning & expectations is available at: https://youtu.be/um9LXP_pdzU

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