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S&P 500, Nasdaq 100 Outlook: US Inflation Data to Make or Break the Market’s Spirit

S&P 500, Nasdaq 100 Outlook: US Inflation Data to Make or Break the Market’s Spirit

Diego Colman, Market Analyst

US STOCKS OUTLOOK:

  • Nasdaq 100 jumps 1.30%, outperforming its Wall Street peers
  • S&P 500 gains 0.3%, while the Dow Jones slides 0.26%
  • Wednesday’s U.S. inflation data will set the mood and tone for Wall Street in the coming days

Most Read: S&P 500, Nasdaq 100, Dow Jones Forecasts - Mercy Bounce from Big Support

After a brutal plunge at the start of the week, the equity market stabilized and found a footing on Tuesday, allowing stocks to stage modest rebound ahead of key U.S. economic data on Wednesday. After all the twists and turns, the S&P 500 climbed 0.25% to 4,001 in a highly volatile session that saw index move between positive and negative territory multiple times. The Nasdaq 100, for its part, jumped 1.30% to 12,345 as dip buyers resurfaced to pick up cheapened tech shares following the monumental rout seen over the last five weeks. Last but not least, the Dow Jones underperformed its peers and fell 0.26%, ending the day at 32,160, its lowest closing level since March 2021.

Although selling activity eased somewhat, sentiment remains fragile and risk appetite almost non-existent due to growing concerns that the U.S. economy is headed for trouble. Investors are losing faith in the Fed's ability to engineer a soft landing and are beginning to bet that the rising interest rate environment needed to crush inflation will also squash economic activity, leading to a recession in the not-so-distant future. Whether justified or not, these fears are exacerbating the state of pessimism among traders, leading them to frequently fade rallies.

Looking ahead, all eyes will be on the latest consumer price index report due out tomorrow morning (Wednesday). Whatever happens, the data will likely set the tone for Wall Street in the coming days. As for consensus forecasts, analysts surveyed by Bloomberg News expect April headline CPI to come in at 8.1% year-over-year, a step down from the 8.5% year-over-year registered the previous month. The annual rate for the core gauge is also seen cooling, moving from 6.5% y/y to 6.1% y/y.

For the mood to improve and to stop the bleeding, the data must confirm that inflation peaked in March and its beginning to come down. If this story line plays out, a robust relief rally could be in the cards. Conversely, if CPI results top expectations and show the inflationary pressures remained largely unchecked during the period in question, turbulence could intensify in the near term on bets that policymakers will have to be more aggressive in cooling demand to restore price stability. This scenario could trigger another brutal sell-off in stocks, especially in the highly rate-sensitive tech space.

NASDAQ 100 TECHNICAL ANALYSIS

After a sharp sell-off at the start of the week, the Nasdaq 100 dropped below a key support near 12,210 on Monday, but the breakout was not sustained, with the index moving back above this level on Tuesday following a modest rebound. While this bounce is welcomed, it doesn’t change the fact that the broader outlook is negative and that the index is in a vicious bear market.

Focusing on the next catalysts, the April CPI report will likely trigger sharp moves among the top stock benchmarks, so traders should keep on eye on how price action resolves for clues on near term direction. That said, if we see a decisive drop below 12,210 and follow-through on the downside in the coming days, bears could launch an attack on 11,600, followed by 11,000.

On the flip side, if the Nasdaq builds on Tuesday’s recovery and charges higher, initial resistance appears at 12,645. On further strength, the focus shifts up to 13,000.

Nasdaq 100 technical chart

Nasdaq 100 Chart Prepared Using TradingView

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---Written by Diego Colman, Market Strategist & Contributor

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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