Dow, S&P 500, Nasdaq Forecast for the Week Ahead: FOMC, Core PCE

Dow, S&P 500, Nasdaq Talking Points:

• The first week of President Trump’s second term was a positive for stocks with the Dow, Nasdaq and S&P 500 all showing gains.
• The S&P 500 jumped up to a fresh yearly high, extending the bounce after filling the election gap last week. The Dow Jones Industrial Average remains below the 45k level that showed as resistance in November and December, and that’s the next major obstacle for bulls. Similarly, the Nasdaq hasn’t yet been able to show sustained drive above the 22k psychological level as buyers shied away from another test of the big figure this week. But that’s the big level sitting overhead for the tech-heavy index.
• For next week there’s an FOMC rate decision on Wednesday and Core PCE data on Friday, both of which could have a strong macro drive as rallies have run in U.S. equities around the inauguration of President Trump.
• I covered equity indices in our 2025 forecasts, and you’re welcome to access the entire section from the below link:

Indices AD

The last notable pullback in U.S. equities fired off around the FOMC rate decision in December, when the bank sounded less dovish than they had in the months before. And that relative weakness in equities remained through early-2025 trade, until support finally showed the Monday before last and stocks bounced aggressively through the inauguration of President Trump.

President Trump’s first week back in office came along with continued bullish drive in U.S. equities. Trump had a speech at Davos that seemed almost designed to pump equities and, in-turn, growth projections. There was also a comment which he said he would demand lower rates, which sets the stage for some possible tension with FOMC Chair Jerome Powell later in the year. But, at this point markets seemed content to chew on the positive drivers as the S&P 500 jumped up to a fresh all-time-high, finally crossing the 6,100 level that had set resistance back in December.

The two-week-rally in SPX currently stands at just a tick under 5.5%, which is an astounding move by any stretch. But perhaps more interesting is where this happened, as it was after the election gap had filled earlier in the prior week that the tone started to shift.

SPX Weekly Chart

S&P 500 Monthly

Next week is the final week of January so the Friday close will also be the close of the January monthly bar. And from that monthly chart at this point, January has been a massively bullish outlay and if it closes near highs, the door remains open for continued gains. As for follow-through resistance levels, there’s a Fibonacci projection plotted at 6,145 and then the 6,200 psychological level becomes a logical next spot of interest.

Of course, the FOMC rate decision and the Core PCE data will have some impact on how the monthly candle finishes, and if this sees an erase of the monthly gain with a net show of indecision, the door can quickly open for retracement or pullback themes.

SPX Monthly Price Chart

Dow Jones

It’s been a similarly strong month for the Dow but the range so far in January is less than the size of moves in both November and December. But – like what showed above in SPX, sellers had an open door to drive a deeper sell-off and they failed to do so, leading to the extended underside wick on the monthly chart with one week left to go ahead of the January close.

In the Dow, it’s the 45k level that looms large. Bulls tried and failed to leave that behind on two separate occasions last year, which eventually led to the pullback and test of the 42k level.

The rally over the past two weeks has been intense and as of this writing, it’s even outpaced the advance in SPX by a slight margin. But – with that said, it’s more difficult to run bullish continuation scenarios in the Dow given that price remains below the 45k level, while SPX has already pushed up to a fresh all-time-high.

As such, there could be interest for pullback plays in the Dow, or for bulls, retracement setups. There’s some remaining unfilled gap from the past two weeks that could serve as support potential and that will remain of interest until either fresh highs are formed or sellers take out supports to elicit larger reversal themes.

Dow Jones Daily Chart

Nasdaq

As we move deeper into earnings season the Mag 7 group becomes a larger focal point. NVIDIA reports about a month from now and that’s been a big driver in the bullish ascent for equities, but next week brings results from Tesla. And given the reaction to Netflix, this remains a big point of interest on the bullish equity scenario.

The rally in the Nasdaq 100 over the past couple of weeks is a bit stronger than what’s shown in SPX but not quite as large as what’s currently showing in the Dow. And while 45k remains a clear point of resistance potential in the Dow, it’s the 22k level that’s of interest in the Nasdaq 100 as there was just two daily closes above that price in December, before prices sold off on Fed day and there hasn’t been a test above since.

Similar to the Dow above, there is some unfilled gap that can be of interest for bullish continuation scenarios. Of particular interest would be the gap from last Tuesday’s close to Wednesday’s open, from 21,557-21,722. If that can’t hold it wouldn’t exactly be a positive sign but, given the Tesla earnings report there could be motivation for a deeper retracement, so bulls wouldn’t necessarily be done for should that zone not hold. Below that, there’s a secondary zone of support potential from 21,087-21,334 and if that doesn’t hold, bulls may have something larger to worry about.

As an ‘s3’ area of support, I’m still tracking the 20,673 level that set the highs back in July, and this is also the 161.8% extension of the 2022 pullback move.

From the daily chart, there’s a current bearish engulf formation that’s brewing, and this points to deeper pullback potential into early trade next week.

Nasdaq 100 Daily Chart

--- written by James Stanley, Senior Strategist