As autumn rolls in, market watchers are bracing for more than just cool weather. This week, all eyes are on the Federal Reserve, which is widely expected to cut interest rates by 25 basis points on Wednesday. If it happens, it’ll mark a notable shift after two years of gradual rate increases. In the lead-up to this decision, speculation has been rampant, with every piece of economic data and every word from Fed officials being scrutinized closely.
Take the recent Nonfarm Payrolls report from September 6, which showed job growth slowing more than anticipated—142,000 new jobs versus the forecast of 189,000. Shortly after, the inflation data came in with mixed signals: Core CPI rose a bit more than expected (+0.3% vs. +0.2%), but headline CPI was right on target at +0.2%. These developments stirred the markets, but didn’t shake the overall expectation that a rate cut is coming, especially since the Fed’s preferred inflation measure, the PCE deflator, remains well within their targets.
Now, with a rate cut seeming all but certain, investor sentiment has shifted. Risk-taking is on the rise, and the stock market has responded positively. The S&P 500 has pushed above 5660, and the Dow Jones has hit a record high of 41,700. Major stocks like Nvidia (NASDAQ:NVDA) and Amazon (NASDAQ:AMZN) have been driving much of this momentum, contributing to the strength in both indices.
The question now is: will the rally continue after the Fed’s announcement? Let’s dig into the charts and see what’s next.
S&P500
After pulling back to support at 5100, the index bounced back with an impressive 11% gain, keeping the uptrend intact. By September 17, it reached the upper boundary of the Ascending Triangle pattern at 5677, signaling a potential breakout. If the index breaks through this level, the next target could be 5940, which aligns with the upper border of the long-term ascending channel. On the downside, support sits around 5400, reinforced by the 100-day SMA and the 38% Fibonacci level.
US Dow Jones 30
The Dow Jones 30 hit an all-time high of 41,885 on September 17, just one day ahead of the much-anticipated Fed rate announcement. Traders are now eyeing the next resistance level at 42,200, where the price is expected to meet the ascending trendline. If it breaks through that barrier, the index could surge toward 43,000. However, be cautious—a post-rate-cut drop is possible, as this event might already be priced into the market.
While markets have rallied anticipating the Fed’s action, traders should be aware of potential short-term volatility following the announcement. It’s not uncommon for initial reactions to rate decisions to be followed by sharp reversals, especially if the market misreads the Fed’s future policy intentions. Be prepared for a possible “sell the news” reaction if the Fed’s tone is less dovish than expected. For traders looking to capitalize on the news, remember that sticking to solid risk management strategies is key to navigating this highly volatile environment.