Nasdaq Leads Pre-Fed Bounce on a Narrow Bet
The Nasdaq is doing the heavy lifting Wednesday while the Dow sits flat and waits. Growth-stock buyers are stepping in ahead of the Fed decision because the 10-year yield slipped below 5% and they are betting Warsh raises rates once and stops. That is a narrow trade. August retail sales came in strong. Diesel is above $6 a gallon. Crude is still above $100. None of that gives the Fed an easy exit and Warsh has to talk about all of it at 18:30 GMT.
At 15:13 GMT, the Dow Jones Industrial Average is trading 52,082.53, down 10.58 or -0.02%. The S&P 500 Index is at 7,616.52, up 30.79 or +0.41%. The Nasdaq Composite is trading 26,201.829, up 220.258 or +0.85%.
Daily S&P 500 Index (SPX) Technical Analysis
The S&P 500 Index is edging higher as it heads into the mid-session. The early price action suggests traders are trying to recover the 50-day moving average. The main trend is down according to the daily swing chart. A trade through 7572.69 will signal a resumption of the downtrend. The main trend will change to up on a trade through 7756.76.
The minor trend is also down. A trade through 7677.02 will change the minor trend to up. This will shift momentum to the upside.
The short-term range is 7313.92 to 7816.70. Its retracement zone at 7565.31 to 7505.98 is a potential support zone. Tuesday’s low at 7572.69 came in a little short of the upper level of the support zone.
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See all S&P 500 forecastsThe Split Between the Nasdaq and the Dow Tells the Story
Nvidia, Apple and the large growth names are driving the Nasdaq higher. Homebuilders are catching a bid too. Both groups are positioned for a rate hike that calms inflation concerns without pushing longer-term borrowing costs higher again. The SPDR S&P Homebuilders ETF gained 0.3% after falling 10.1% over the past month.
The Dow is not confirming any of it. The index touched 51,881.68 earlier and clawed back with help from Honeywell, Disney and UnitedHealth. It is still flat while the Nasdaq is up nearly 1%. When the Dow cannot follow the Nasdaq higher on a day where growth is leading, the market is telling you the rally has a ceiling that only the Fed can raise.
Fed funds futures have the hike at 92.9%. The market also sees a 39.1% chance of another move in October and 26.4% in December. That is the risk sitting behind the Nasdaq’s bounce. Buyers are paying for one hike and hoping they do not get a cycle.
Retail Sales Beat and That Is Not Helping the Fed
August retail sales rose 1.2%, reversing July’s 0.5% decline and beating the 0.8% estimate. Excluding autos, sales rose 1.4%. Online retailers, electronics and restaurants all showed strength. Sales rose faster than the 0.4% CPI gain, which means consumers are spending through the inflation, not pulling back under it.
That number does not help Warsh sound finished. Firm consumer demand on top of oil above $100 and diesel at record levels gives the Fed no clean reason to signal a pause. The market wants a one-and-done hike from a Fed chair looking at data that argues for more. That contradiction is the risk the Nasdaq is ignoring Wednesday morning.
DataTrek Says History Is Not on the Nasdaq’s Side
DataTrek Research reported that the Nasdaq fell in the month after five of the past six rate-hiking cycles. The three-month record was worse in four of those episodes. The longer-term results were more mixed but the near-term message is not friendly.
The Nasdaq is buying the case that this hike is different because it is supposed to be the last one. If Warsh makes it sound like the first one instead, the historical pattern has something to say about what happens next. Wednesday’s rally is priced for an ending, not a beginning.
Stocks in the News
Goldman Sachs raised its Chevron price target to $240 from $225, pointing to international growth, higher-margin production outside North America and Venezuelan operations where gross output is expected to rise from about 280,000 barrels per day to 600,000 barrels per day by 2031. Chevron is on the energy side of the trade, benefiting from the same oil prices that are creating the inflation problem for the rest of the market.
Apple was higher ahead of the decision. Goldman Sachs was lower again, extending the point drag that took 180 points out of the Dow on Tuesday.
What to Watch
The Fed decision and Warsh’s press conference at 18:30 GMT are the only events left Wednesday. The Nasdaq is positioned for a limited hike and a Fed chair who sounds like the work is done. The Dow is not positioned for anything. It is flat because Goldman and the high-priced components are still under pressure from the same yield and rate trade that hit them Monday and Tuesday. The split between the two indexes does not close until Warsh talks.
The bias leans bearish on the S&P 500 with the main trend down on the daily swing chart. The index is trying to recover its 50-day moving average at 7613.22 and that level is the near-term pivot. A push through it and then through 7677.02 would flip the minor trend to up with the next resistance at 7694.70. Sellers could reemerge at that level and the main trend does not change until 7756.76 is taken out. On the downside, Tuesday’s low at 7572.69 is the line. A break through it opens the retracement zone at 7565.31 to 7505.98 and that is where the real test comes for buyers trying to defend the bounce.
More Information in our Economic Calendar.
