Nasdaq Gains 0.85% as Markets Price Single Fed Hike
The Nasdaq Composite rose 0.85% to 26,201.83 while the Dow Jones Industrial Average remained flat at 52,082.53. Traders are betting on a single interest rate hike by the Federal Reserve, despite strong consumer data and high fuel prices that complicate the outlook.
The Nasdaq Composite Index rose 0.85% to 26,201.83 on Wednesday, outperforming the broader market. The S&P 500 Index gained 0.41% to 7,616.52. The Dow Jones Industrial Average fell 0.02% to 52,082.53.
Growth stocks led the rally as investors positioned for a single Federal Reserve rate hike. The 10-year Treasury yield dipped below 5%, supporting valuations for technology and homebuilder sectors. Fed funds futures imply a 92.9% probability of a rate increase at the upcoming meeting.
Consumer Data Complicates Fed Pause
August retail sales increased 1.2%, exceeding the 0.8% estimate and reversing July's 0.5% decline. Sales excluding automobiles rose 1.4%, indicating strong underlying demand. Online retailers, electronics, and restaurants showed notable strength.
The strength in consumer spending contrasts with the market's expectation for a policy pause. Crude oil remains above $100 per barrel, and diesel prices exceed $6 per gallon. These factors limit the Federal Reserve's ability to signal the end of the tightening cycle.
Historical Patterns Favor Caution
DataTrek Research notes that the Nasdaq fell in the month following five of the past six rate-hiking cycles. The three-month record was negative in four of those episodes. This historical pattern poses a risk to the current rally.
Investors are pricing in a one-and-done hike rather than a prolonged cycle. If Federal Reserve Chair Kevin Warsh signals further tightening, the market may face a correction. The current optimism relies heavily on the assumption that this is the final rate increase.
S&P 500 Technical Levels
The S&P 500 is attempting to recover the 50-day moving average. The daily trend remains down according to swing chart analysis. A close below 7,572.69 would signal a resumption of the downtrend.
A break above 7,756.76 would shift the main trend to up. The minor trend remains down until price trades above 7,677.02. The short-term range for the index stands between 7,313.92 and 7,816.70.
