What impact will the central bank's interest rate hikes/cuts/no action have on the market? How to find trading opportunities from central bank movements?
The Fed hovers like a hawk to put pressure on U.S. stocks
The Federal Reserve released its quarterly forecast at its September FOMC meeting early Thursday morning, making some noteworthy updates. For example, the interest rate dot plot shows only 50 basis points of interest rate cuts in 2024, compared with the June forecast of 100 basis points.
U.S. stocks subsequently fell again as fewer rate cuts meant stocks had to endure a restrictive monetary policy environment for longer than expected. Big tech stocks have also shown sensitivity to rising interest rates, as Amazon's e-commerce business could slow as households' disposable income is squeezed for longer. According to reports, Taiwan Semiconductor Manufacturing Co. (TSMC) had previously expressed concerns about demand and subsequently asked suppliers to slow down delivery. This also caused the stock price of Huida (TSMC) to fall and chip manufacturers were generally under pressure.
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From the weekly chart, the S&P 500 Index is testing the key support level. If it falls below this level, it means that the S&P 500 Index will face further pressure this week. At that time, the lower target will be 61.8% of the main trend in 2020. Fibonacci retracement level 4195.
The Dow Jones Industrial Average Index has lagged in a bull market for stocks, raising the question: Will the index lead the downtrend? It's still too early to predict a reversal, but some early signs are emerging.
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Weekly chart of Dow Jones index trend
Looking at the price action, the Dow closed last week at its lowest closing price since August, and also fell below 34,281 points, which was the swing high in August 2022, after spending most of 2023. That high also capped the Dow's gains. If the sell-off continues, the target below is around 33,785, the 61.8% Fibonacci retracement of the main trend in 2020-2021.
If it falls further by then, the lower support will be towards 32,578. While this level is still quite far away from current prices, a close below 33,785 could see a test of this level soon.
