Dow Jones, the S&P 500, and Nasdaq price forecast as U.S. inflation cooled down in October

Wall Street’s three main indexes advanced last week as better-than-expected inflation data raised hopes the Federal Reserve would get less aggressive with U.S. interest rate hikes.

The United States unveiled the October Consumer Price Index (CPI) on Thursday, and according to the report, CPI was up by 7.7% YoY in October, down from 8.2% in September. Core goods prices fell by 0.4%; used car prices plunged as well, while goods deflation showed signs of broadening.

The softening in October inflation is certainly positive news for the U.S. stock market, and there is a big chance that Fed policymakers could decide to raise rates by 50 basis points when they meet in December instead of 75 basis points. King Lip, a chief strategist at Baker Avenue Asset Management, said:

We have been calling the peak of inflation for the last couple of months and just have been incredibly frustrated that it hasn’t shown up in the data. For the first time, it has actually shown up in the data.

Despite this, investors should keep in mind that this is not the beginning of a new bull market and that the U.S. economy is headed for a recession that has not been factored into earnings estimates and, therefore, share prices.

The risk of another decline is still not over, and in the days ahead, the U.S. stock market is going to be hypersensitive to any sort of FED comments. Inflation remains well above what the Fed thinks is consistent with stable prices, and the U.S. central bank has more work to do.

S&P 500 up 5.9% on a weekly basis

For the week, S&P 500 (SPX) booked a 5.9% increase and closed at 3,992 points. Investors showed courage on signs of a slight slowing of inflation, and S&P 500 had the biggest weekly gain in roughly five months.

If the price jumps above the current resistance level, which stands at 4,200 points, it could reach 4,400 points very soon.

On the other side, if the price falls below 3,800 points, it would be a “sell” signal, and we have the open way to 3,600 points.

DJIA up 4.25% on a weekly basis

The Dow Jones Industrial Average (DJIA) advanced 4.25% for the week and closed at 33,747 points.

The current resistance level stands at 34,000 points, and if the price jumps above this level, the next target could be around 34,500 points.

The important support level stands at 32,000 points, and if the price falls below this level, the next target could be 31,000 points.

Nasdaq Composite up 8.1% on a weekly basis

For the week, the Nasdaq Composite (COMP) booked an 8.1% increase and closed at 11,323 points.

However, Nasdaq Composite is still down sharply on a year-to-date basis, on course for its worst annual performance since 2008, on fears that surging inflation and rising interest rates will dent corporate profits.

Summary

Wall Street’s three main indexes advanced after the United States unveiled the Consumer Price Index (CPI) for October. Decline in year-over-year CPI growth to 7.9% from 8.2% in September, and compared with the 9.1% peak in June, increased hopes the Federal Reserve would get less aggressive with U.S. interest rate hikes.

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inflation
deflation
reserve
interest rates
fed
central bank