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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Wall Street: S&P 500 enters correction territory and what to expect from FOMC meeting

As the S&P 500 hits a rough patch, investors are eyeing the upcoming FOMC meeting and potential Fed policy shifts. Explore the technical outlook for the S&P 500 and Nasdaq as market volatility intensifies.

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S&P 500 enters correction territory

With two sessions left to go, the benchmark S&P 500 is down 3.98% in October and has officially entered correction territory after recording falls of 4.87% in September and 1.77% in August. The last time the S&P 500 fell as heavily in October as it has this year was back in 2018 when it fell 6.94%, a move that was the encore to the main event—a stomach-churning 15% intra-month fall in December.

Historical context and the Fed's role

Back then, like now, the Fed was in the latter stages of a tightening cycle, which coincided with then-President Donald Trump's trade war with China. Concerns over slowing growth and a tumbling stock market were the catalysts for a dovish Fed reversal in the final days of 2018, sparking a sharp rally in early 2019.

Why do I mention this?

The Fed Chair back in 2018 was Jerome Powell, the current Fed Chair. While today's backdrop of higher rates and geopolitical challenges is similar in some respects to 2018, there is one noticeable difference. As we have highlighted in recent weeks, the Fed has already pivoted away from its hawkish bias to adopt a more cautious tone, perhaps in recognition of the events of 2018.

Upcoming FOMC meeting

Date: Thursday, 2 November at 5 am AEDT

To recap, at its meeting in September, the Fed elected to maintain the target range for the Federal Funds rate at 5.25%-5.50% and retained its tightening bias. "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals."

In recent weeks, several Fed speakers, including Fed Chair Powell, have sounded more cautious and noted that the rise in longer-term bond yields and tightening financial conditions have reduced the need for further monetary policy tightening. As such, the market widely expects the FOMC to keep the Federal Funds target rate unchanged at 5.25%-5.50% in November.

With no Summary of Economic Projections (SEP) or dot plots, the focus will be on the accompanying statement.

Interest rate outlook

The more cautious shift in tone noted in recent Fed commentary will likely be reflected in softened forward guidance. In recognition of a series of robust economic data, the statement will likely reiterate that interest rates need to remain higher for longer.

Source: TradingView

S&P 500 technical analysis

The pullback we had been forecasting since July, which we reaffirmed in September, last week broke through crucial technical support at 4200. As a result, we have moved to a neutral bias, given the risks of a deeper decline towards 3900.

For a more optimistic outlook to emerge, the S&P 500 needs to reclaim the 200-day moving average at 4264 and maintain support in the 4300 area on a sustained basis.

S&P 500 daily chart

Source: TradingView

Nasdaq technical analysis

As noted in recent reports, the pullback in the Nasdaq (until late last week) had fallen short of the wave equality pullback target in the 14,200 area, leaving uncertainty as to whether the Nasdaq had completed its correction or was missing a final leg lower before the uptrend resumed.

Following the sell-off at the end of last week, the Nasdaq has now reached and tentatively bounced from the 14,200/14,000 support zone. Provided it stays above support at 14,200/14,000, we cannot rule out a retest of trend channel resistance at 15,450, originating from the July high of 16,062.

Nasdaq daily chart

Source: TradingView

  • TradingView: the figures stated are as of 30 October 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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