While the rallying technology companies have consistently been propelling the tech-heavy indices such as the Nasdaq to new record highs, the likes of the Dow Jones have been relatively quieter in the last couple of days, even though it too has surged to new record highs this month. Another index that has not yet joined the other indices in hitting new records is the small-cap Russell 2000. However, with rate cut bets on the rise, investors have evidently been scooping up small caps as well, which has helped to lift the Russell near last year’s highs. With price action on major global indices remaining bullish, the Dow Jones and Russell 2000 forecast both remain positive ahead of the Fed’s rate decision on Wednesday.
Factors moving the markets and what to watch out for?
The market mood in recent weeks feels almost unstoppable, especially towards the technology sector. The Nasdaq 100 is on the verge of a 10th straight day of gains, powered by relentless enthusiasm for technology stocks, while the Federal Reserve is set to fire the starting gun on a new cycle of rate cuts. After the big gains in Tesla, today it is Oracle which has caught the wave with a near 5% premarket leap.
But investors seem to be ignoring the risk that rate cuts are arriving not because the Fed wants to fuel the party, but because the economy needs support. We have seen a material deterioration in the jobs market in recent months, at a time when inflation has remained hot. With gold also on the verge of reaching a new high of $3,700 an ounce, it may be worth being a little cautious in chasing this stock market rally if you are not already in it. Gold’s rally may not just be a function of weaker yields or a softening dollar, but also concerns about what lies ahead, with investors happy to be hedging their bets, especially given that confidence in the Fed’s ability to steer a “soft landing” isn’t universal.
Today’s upcoming retail sales report should be important for retail stocks and could impact the Dow Jones forecast. A modest 0.2% increase is expected, but with job creation cooling and prices pressing higher, many economists are not convinced the American consumer can keep carrying the load. If household spending begins to roll over, it will all be up to the AI hype to keep markets supported.
Dow Jones forecast remains bullish amid strong momentum
The Dow Jones chart is continuing to look constructive. After chopping sideways for a few days above the key 45,000 mark – a crucial resistance level taken out back in late August – we finally got the extended breakout on Thursday of last week as the index pushed through interim resistance around 45,700/800 area. This was a strong signal that the bulls are still in charge. As long as we hold above that level on any retest, the uptrend will remain rather healthy. In the last two and a half days, this support area has held.
But if we slip back below the 45,700/800 area, things could get a bit messy in the short-term, but the broader structure still screams bullish. The 45,000 level remains the real line in the sand – lose that and the tone changes, but for now, I’d be surprised if we don’t see higher highs from here.
Technical Russell 2000 forecast: new highs incoming for small caps?
The Russell 2000 index has been painting bullish price action alongside the other major US indices, although the small-cap index is yet to make a new all-time high. Last year, in November, the index broke above the then all-time high of 2,461 from November 2021. But there was no upside follow-through, with the index peaking at 2,468, before plunging 30% by the lowest point in April. The impressive rally from the April lows has brought the index back near these key levels from the past. Will it finally clear these two hurdles at 2,461 and 2,468?
In terms of support levels to watch, the area just beneath the 2,400 mark (2,393-2,400) is key. This zone was resistance until Thursday’s clean breakout. Now being tested as support, so far, the bulls have prevailed. Should the index go below this area on a closing basis, then that would make things a little more uncertain, especially if the index goes on to also break Thursday’s low at 2,370, my line-in-the-sand level. For now, the Russell 2000 forecast remains positive from a technical standpoint.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
