Will the Dow Go Under 30k?

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The Dow looks like it could drop below 30,000 and retest its 2022 lows.

Photo by Michael M. Santiago/Getty Images

It’s another bad day for the stock market and the Dow Jones Industrial Average is slumping ever closer to 30,000. Will it find support or will it break?

The Dow has dropped 421.03 points, or 1.3%, to 30,598.65 on Tuesday as the Federal Reserve gets ready to make its interest-rate decision. The Fed is set to raise interest rates by at least three-quarters of a percentage point on Wednesday, but this interest rate hike is the least of the stock market’s worries.

The big question has pivoted away from what the Fed will do in November, to what the fed-funds rate will be when hikes finally come to an end. The market’s fear isn’t just that rates will go much higher than originally thought—perhaps as high as 5%, from original estimates for just over 3%. It is also that the Fed will keep rates higher for longer than expected.

Higher rates initially hit companies with high valuations, as higher “discount rates” lower stock multiples. That’s hurt the expensive growth stocks that dominate the Nasdaq Composite more than the more diversified holdings in the S&P 500 and the Dow. But as the Fed keeps tightening monetary policy, the possibility of a recession becomes the market’s chief concern—and that hurts economically sensitive stocks, like those in the Dow, harder than the companies in the Nasdaq.

That may be what’s happening on Tuesday. The Nasdaq has fallen 1.1%, but the Dow has fallen more. Now, it’s just 598.65 away from 30,000, a level it first crossed to the upside in 2020 with much fanfare. That’s not a big drop these days, just 2%. (Of course, just falling a little bit below 30,000 doesn’t really count as a break. The Dow hit a low of 29,888.78 on June 17, but that turned out to be the low.)

More than anything, these lows need to hold. At the time the Dow was hitting its low of 2022, the S&P 500 was two days away from its own low of 3666.77. And that is where the big battle should happen, notes Phases & Cycles Ron Meisels. On the one hand, the S&P could find support at 3670 due to some unexpected news, and from what’s called a “double bottom.” That would lead to a year-end rally, he says. But if 3670 breaks, the next support level would form at around 3500.

Meisels doesn’t make a call. “It is not our usual practice to give either-or forecasts, but at the moment the potential for further negative news from the FED makes itvery challenging for longer-term forecasts,” Mesiels explains.

Depending on what the Fed does Wednesday, we could find out as soon as tomorrow.

Write to Ben Levisohn at ben.levisohn@barrons.com