Dow Jones, the S&P 500, and Nasdaq forecast after another 75bp rate hike

Wall Street’s three main indexes remain under pressure after the U.S. Federal Reserve decided to lift interest rates by 0.75 basis points on Wednesday and signaled that rates might go even higher than previously estimated.

With Friday’s drop, Wall Street’s three main indexes have fallen in seven of the last nine sessions, and investors continued to worry that an aggressive Federal Reserve will push the economy into recession.

The federal funds rate is now in a range of 3% to 3.25%, while the new FED projections show its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023.

Recent inflation numbers suggest that the Fed needs to be more aggressive and Fed Chair Jerome Powell said that U.S. central bank officials are strongly resolved to bring down inflation from the highest levels in four decades and will keep at it until the job is done.

This is certainly not good news for the U.S. stock market, and the upside potential for Wall Street’s three main indexes remains limited. Goldman Sachs Chief US Equity Strategist, David Kostin said:

The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast. The S&P 500 could fall as low as 3,400 if the earnings of its listed companies decline.

The outlook for risk appetite in the near term is not looking good, and going forward, the U.S. stock market is going to be hypersensitive to any sort of FED comments.

S&P 500 down -4.6% on a weekly basis

S&P 500 (SPX ) weakened by -4.6% last week and closed Friday’s session at 3,693.22 points, down from last Friday’s closing level of 3,873.33. With just one week remaining in the month, this puts the S&P 500’s decline for September to date at 6.6%.

The index is now down by nearly 23% for the year to date, and the upside potential for S&P 500 remains limited. If the price falls below 3,500 points, the next target could be 3,000 points which represents a strong support level.

DJIA down -4% on a weekly basis

The Dow Jones Industrial Average (DJIA) weakened by -4% last trading week and closed the week at 29,590.42 points.

FED signaled that it expects high U.S. rates to last through 2023, and we can expect new lows for the Dow Jones Industrial Average in the months ahead. The current support level stands at 29,000 points, and if the price falls below this level, the next target could be 28,500 points.

Nasdaq Composite down -5.07% on a weekly basis

Nasdaq Composite (COMP) lost -5.07% last trading week and closed at 10,867.93 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 10,500 points, and if the price falls below this level, the next target could be 10,000 points.

Summary

The Dow Jones, the S&P 500, and the Nasdaq remain under pressure after the U.S. Federal Reserve decided to lift interest rates by 0.75 basis point on Wednesday and signaled that rates might go even higher than previously estimated. The dynamic of high-interest rates, slower growth, and worsening spending will negatively impact corporate profits, and investors continue to worry that an aggressive Federal Reserve will push the economy into recession.