U.S. inflation data to make or break the mind of the market

U.S. EQUITY OUTLOOK:

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

Most read: S&P 500, Nasdaq 100, Dow Jones Forecast – Big Support’s Mercy Bounce

After a brutal dip at the start of the week, the stock market stabilized and found a footing on Tuesday, allowing stocks to begin a modest rebound ahead of Wednesday’s key US economic data. After all the twists and turns, the S&P 500 climbed 0.25% to 4,001 in a highly volatile session that saw the index swing multiple times from positive to negative territory. The Nasdaq 100, for its part, jumped 1.30% to 12,345 as bearish buyers resurfaced to pick up underpriced tech stocks after the monumental rout seen in the past 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 has eased somewhat, sentiment remains fragile and risk appetite almost non-existent due to growing fears that the US economy is headed for trouble. Investors are losing faith in the Fed’s ability to stage a soft landing and are beginning to bet the rising interest rate environment needed to crush inflation crush economic activity, leading to a recession the not so distant future. Whether justified or not, these fears exacerbate the state of pessimism at merchantsfirst them to fade gatherings frequently.

Going forward, 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 the consensus forecast, analysts polled by Bloomberg News expect April headline CPI to come in at 8.1% year-over-year, one step down 8.5% year over year registered the preceding month. The annual core gauge rate is also seen cooling down, going from 60.5% y/y at 6.1% y/y.

For the mood to improve and the bleeding to stop, data must confirm that inflation sharp in March and its beginning to go down. If that script is played, a robust a relief rally could be in the cards. Conversely, if The CPI results beat expectations and show that 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 to cool demand restore price stability. This scenario could trigger another sharp sell-off in equities, especially in the highly rate-sensitive tech space.

NASDAQ 100 TECHNICAL ANALYSIS

After a strong sell-off earlier in the week, the Nasdaq 100 fell below key support near 12,210 on Monday, but the breakout was unsustained, with the index returning above that level on Tuesday after a modest rebound. Although this rebound is welcome, it does not change the fact that the 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 major equity benchmarks, so traders should keep an eye on how the price action unfolds. solves for clues about near-term direction. That said, if we see a decisive drop below 12,210 and following the drop in the next few days, the bears could launch an attack on 11,600, followed by 11,000.

On the other hand, if the Nasdaq builds on Tuesday’s rally and charges higher, initial resistance appears at 12,645. On more strength, the focus moves up to 13,000.

Nasdaq 100 chart prepared using TradingView

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—Written by Diego Colman, market strategist and contributor

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