Dow Jones, the S&P 500, and Nasdaq price forecast after last week's dip

Wall Street’s three main indexes weakened last week to levels not touched since mid-July as worries of impending global slowdown and surging inflation continue to keep investors in a negative mood.

Despite the late summer stock market optimism, the reality is setting in once again, and recent inflation numbers suggest that the Fed needs to be more aggressive in combat to fight inflation.

A hotter-than-expected inflation report for August clearly sends a hawkish message as the signs of decelerating price pressures in July proved to be short-lived.

The consumer price index rose 0.1% in August against the expectation of a 0.1% dip, and on a year-on-year basis, the consumer price index increased by 8.3%, while analysts were anticipating a rise of 8.1%.

There is a big possibility that the U.S. central bank will increase the interest rate by at least 75 basis points at its monetary policy meeting next week, while the CME’s FedWatch reported that there is a 14% chance of a super-sized, 100 basis point increase. David Carter, managing director at JPMorgan in New York, said:

We are facing this toxic brew of high inflation, high-interest rates, and low growth, which is not good for stock or bond markets. While the market is expecting a big bump in the Fed’s rates next week, there is tremendous uncertainty and concern about future rate increases.

The upside potential for Wall Street’s three main indexes remains limited, especially if the U.S. Federal Reserve decides to lift the interest rates by 75 bps or more at its meeting on Sept 20-21.

The dynamic of high-interest rates, slower growth, and worsening spending will negatively impact corporate profits and should lead to more pain in the weeks ahead.

S&P 500 remains under pressure

S&P 500 (SPX ) posted its worst weekly performance since mid-June, slumping 4.8% for the five-day session and closing the week below 3,900 points. The price has also moved below the 10-day moving average, indicating that the bottom is still not reached.

S&P 500 remains under pressure, and if the price falls below 3,500 points, the next target could be 3,000 points which represents a strong support level.

DJIA is trading close to 30,000 points

The Dow Jones Industrial Average (DJIA) weakened by -4.4% last trading week and closed the week below 31,000 points for the first time since mid-June. The Dow also moved below the 10-day moving average, which keeps the look lower on the index.

The important support level stands at 30,000 points, and if the price falls below this level, the next target could be 29,000 points. If the price jumps above 31,500 points, the next target could be resistance at 32,000 points.

Nasdaq Composite fell -5.5% last week

Nasdaq Composite (COMP) lost -5.5% last trading week and closed at 11,448 points. The prospect of a more aggressive monetary policy keeps investors in a negative mood, and the upside potential for Nasdaq Composite remains limited.

The current support level for Nasdaq Composite stands at 11,000 points, and if the price falls below this level, the next target could be 10,500 points.

Summary

Wall Street’s three main indexes weakened last week to levels not touched since mid-July, and the focus remains on the U.S. Federal Reserve’s policy meeting decision next week on Wednesday. The upside potential for Wall Street’s three main indexes remains limited, especially if the U.S. Federal Reserve decides to lift the interest rates by 75 bps or more.