MARKET CALL: Fly Us To The Moon

The major stock market indexes rocketed to new record highs on Friday. We are raising the odds of a meltup from 25% to 30%, reducing the odds of our bullish base-case scenario from 55% to 50%, while leaving the bearish alternative scenario at 20%. In our base-case scenario, the S&P 500 stock price index rises to 7000 by the end of this year and 7700 by the end of next year. Those targets would be exceeded sooner in a meltup, forcing us to raise our odds of a bearish outcome—i.e., a correction, a bear market, or a meltdown.

September's cooler-than-expected CPI report on Friday morning increased the odds of two more Fed rate cuts before the end of this year. Since then, we've been humming Frank Sinatra's rendition of the song "Fly Me To The Moon." The CME FedWatch Tool reflects a 90% probability of two 25bps cuts before year-end, bringing the federal funds rate (FFR) down to 3.50%. It's a sure bet.