The Week Ahead: Fed Rate Hike Decision Puts Stock Market Support Levels in Focus Now!

Market Overview

U.S. equities finished last week lower as hotter inflation, triple-digit crude oil and rising expectations for a September Federal Reserve rate hike brought sellers back into the market. The Dow Jones Industrial Average closed at 52,573.29, down 1.57% for the week. The Nasdaq Composite finished at 26,333.04, down 0.66%, while the S&P 500 ended at 7,656.98, down 0.80%.

The Fed is no longer deciding whether inflation deserves its attention. Friday’s CPI report settled that argument. Headline CPI held at 3.4% from a year earlier and core CPI eased to 2.4%, but the 0.3% monthly increase in core prices was the biggest since April. That reading matched the level Governor Christopher Waller had identified as sufficient to support another rate increase.

Oil added another problem. West Texas Intermediate crude briefly traded above $100 a barrel and Brent approached $110 before both markets pulled back late in the week. A rate increase cannot produce more crude oil, but the Fed has spent more than five years missing its 2% inflation target. Policymakers have less room to dismiss another supply shock while services inflation is firm and the labor market remains strong.

Fed funds futures now assign an 87.3% probability to a quarter-point rate increase on Wednesday, up sharply from 59.4% one week earlier. That makes the hike close to the expected outcome. The bigger trade will come from the statement, new economic projections and Chair Kevin Warsh’s press conference. Traders need to know whether the Fed sees one move as enough or intends to follow the bond market higher over the next several meetings.

Stocks still have earnings on their side. S&P 500 profits increased 50% from a year earlier in the second quarter, and analysts project 27% growth for the third quarter. That support kept the Nasdaq and S&P 500 near their highs even as yields and oil rose. The Dow showed more damage and closed below its first weekly support level. This week will test whether earnings can continue to carry the market when the Fed is tightening instead of standing aside.

Key Economic Releases & Notable Earnings

Monday, September 14

Before the Open

No noteworthy reports scheduled

Economic Releases

No major U.S. economic reports scheduled

After the Close

Dave & Buster’s Entertainment (PLAY), est. $0.18 per share

Tuesday, September 15

Before the Open

No noteworthy reports scheduled

Economic Releases

12:15 GMT, ADP Weekly Employment Change, prior 12.0K

12:30 GMT, Empire State Manufacturing Index, forecast 14.1 (prior 20.6)

20:30 GMT, API Weekly Statistical Bulletin

After the Close

Trip.com Group (TCOM), est. $5.94 per share

Wednesday, September 16

Before the Open

No noteworthy reports scheduled

Economic Releases

12:30 GMT, Core Retail Sales m/m, forecast 0.5% (prior -0.3%)

12:30 GMT, Retail Sales m/m, forecast 0.8% (prior -0.6%)

12:30 GMT, Import Prices m/m, forecast 0.0% (prior -0.4%)

14:00 GMT, Business Inventories m/m, forecast 0.3% (prior 0.0%)

14:00 GMT, NAHB Housing Market Index, forecast 34 (prior 35)

14:30 GMT, Crude Oil Inventories, prior -0.4M

18:00 GMT, Federal Funds Rate, prior 3.75%

18:00 GMT, FOMC Economic Projections

18:00 GMT, FOMC Statement

18:30 GMT, FOMC Press Conference

20:00 GMT, TIC Long-Term Purchases, forecast $146.3B (prior $172.7B)

After the Close

Lennar (LEN), est. $1.30 per share. Revenue is expected at $8.4 billion. Mortgage rates above 7% and weaker home sales put orders, margins and management guidance at the center of the report.

Thursday, September 17

Before the Open

Carnival (CCL), est. $1.29 per share

Economic Releases

12:30 GMT, Philly Fed Manufacturing Index, forecast 28.9 (prior 47.4)

12:30 GMT, Unemployment Claims, forecast 209K (prior 206K)

12:30 GMT, Building Permits, forecast 1.40M (prior 1.43M)

12:30 GMT, Housing Starts, forecast 1.32M (prior 1.24M)

14:00 GMT, Pending Home Sales m/m, forecast 0.3% (prior -2.3%)

14:30 GMT, Natural Gas Storage, prior 40B

After the Close

No noteworthy reports scheduled

Friday, September 18

Before the Open

No noteworthy reports scheduled

Economic Releases

13:15 GMT, Capacity Utilization Rate, forecast 76.4% (prior 76.3%)

13:15 GMT, Industrial Production m/m, forecast 0.1% (prior 0.2%)

13:30 GMT, Federal Reserve Governor Michelle Bowman Speaks

14:00 GMT, CB Leading Index m/m, forecast 0.2% (prior 0.2%)

After the Close

No noteworthy reports scheduled

Central Bank Activity

Tuesday, September 15

Federal Open Market Committee meeting begins

Wednesday, September 16

FOMC rate decision, statement and economic projections, 18:00 GMT

Fed Chair Kevin Warsh press conference, 18:30 GMT

Friday, September 18

Federal Reserve Governor Michelle Bowman speaks, 13:30 GMT

The quarter-point hike is largely priced in, so the projections and Warsh’s message will decide the market reaction. The current target range is 3.50% to 3.75%. A hike would move it to 3.75% to 4.00%. Traders will focus on the projected policy path, the inflation outlook and whether Warsh describes the move as a limited adjustment or the start of a broader tightening campaign.

Technical Outlook

Weekly Dow Jones Industrial Average Index

Dow Jones: 52,573.29 (-1.57%), resistance at 53,143.20 and 54,744.33, support at 51,542.06, 49,900.81, the 52-week SMA at 49,364.31, 48,757.73 and 45,057.28.

Weekly Nasdaq Composite Index

Nasdaq: 26,333.04 (-0.66%), resistance at 26,875.52 and 27,190.21, support at 25,650.43, 24,425.34, the 52-week SMA at 24,149.34, 23,940.23, 23,173.24 and 20,987.12.

Weekly S&P 500 Index

S&P 500: 7,656.98 (-0.80%), resistance at 7,816.70, support at 7,565.31, 7,527.28, 7,313.92, 7,237.85, the 52-week SMA at 7,074.00, 7,066.81, 6,889.83 and 6,316.91.

All three major indices remain above rising 52-week moving averages, so the long-term trends are still up. The Dow weakened after closing below 53,143.20, while the Nasdaq and S&P 500 remain above their nearest weekly support zones. That leaves the broader market in an uptrend, but Wednesday’s Fed decision could determine whether buyers defend support or sellers turn the September pullback into something larger.

Outlook

Wednesday is the week. Retail sales will show how well consumers are holding up under higher borrowing and energy costs, but the numbers arrive only hours before the Fed decision. Strong spending would give policymakers another reason to hike and keep the door open to additional moves. A weak report would complicate the decision, although it probably would not be enough to stop a quarter-point increase that is already 87.3% priced in.

The first move after the announcement could be positioning noise. The lasting move should come from the new projections and Warsh’s press conference. A hike paired with a limited policy path would tell traders that the Fed is making an adjustment, not starting another 2022-style campaign. That result could steady bonds and give growth stocks a chance to regain their bid. A steeper projected rate path would put long-duration technology shares and the broader market back under pressure.

Oil remains the outside risk. A renewed push above $100 in WTI would keep inflation fears alive and make a dovish Fed message harder to defend. A further retreat would remove some pressure from yields and give the market room to focus on earnings growth. The Fed controls Wednesday’s headline, but crude oil can still change the inflation trade before or after the meeting.

The bulls have earnings growth and rising long-term trends. The bears have oil, yields and a Federal Reserve preparing to raise rates. For the Dow, 53,143.20 is the first level buyers need to recover. The Nasdaq must hold 25,650.43, while the S&P 500 has a support zone at 7,565.31 to 7,527.28. If those levels hold and Warsh limits expectations for follow-up hikes, buyers can make another run at the highs. If the Fed signals several increases and crude oil turns higher again, sellers will have the opening they need to extend the September correction.

More Information in our Economic Calendar.