Buy-the-dip signal is in focus for S&P 500 and Nasdaq as FOMC rate projections shift
Half of Federal Open Market Committee participants now project at least one quarter-point rate increase in 2026, up from zero officials who held that view earlier this year, a shift that puts the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) on notice. The catalyst behind the hawkish pivot is persistent inflation: the Personal Consumption Expenditure price index, the Fed's preferred measure, printed at 4.1% in May, a five-year high. Cleveland Fed projections show the metric trending toward 3.8% in August, still well above the central bank's 2% target.
Key takeaways
- Half of FOMC participants now project at least one quarter-point rate increase in 2026, up from zero officials holding that view earlier this year.
- The hawkish shift is driven by persistent inflation, with PCE printing at 4.1% in May, a five-year high, and trending toward 3.8% in August, still above the Fed's 2% target.
- The S&P 500 is up 13% year to date and the Nasdaq Composite is up 15%, but both face pressure from rising oil prices and midterm-year risks.
- In all five FOMC tightening cycles since 1997, the S&P 500 and Nasdaq dropped within three months by averages of 10% and 12%, but every drawdown recovered.
- The key level to watch is the first confirmed close in correction territory, defined as a close 10% below the high, for either index.
Half of Federal Open Market Committee participants now project at least one quarter-point rate increase in 2026, up from zero officials who held that view earlier this year, a shift that puts the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) on notice. The catalyst behind the hawkish pivot is persistent inflation: the Personal Consumption Expenditure price index, the Fed's preferred measure, printed at 4.1% in May, a five-year high. Cleveland Fed projections show the metric trending toward 3.8% in August, still well above the central bank's 2% target.
The macro context
The S&P 500 has gained 13% year to date and the Nasdaq Composite has added 15%, but both indexes face a tougher backdrop. WTI crude futures, the U.S. benchmark, had risen nearly 40% since January as of August 7 after Iran conflict disrupted a key Persian Gulf supply route, adding upward pressure on inflation. PCE has now exceeded the Fed's 2% target for more than five years.
Midterm election dynamics add another variable. Since 1950, the S&P 500 has fallen by an average of 18% at some point during midterm election years, per Carson Research. The president's party typically loses congressional seats, and the resulting policy uncertainty has historically pushed investors toward the exits.
What the history says
In the five tightening cycles the FOMC has run since 1997, both the S&P 500 and Nasdaq Composite dropped at some point in the following three months, by averages of 10% and 12%, respectively. Those drawdowns did not last. Since the Great Recession, the S&P 500 has closed in correction territory 10 times, two extending into bear markets. The Nasdaq Composite has done so 14 times, four becoming bear markets. Both indexes recovered from every instance.
The returns after the first confirmed close in correction territory are specific. For the S&P 500, that entry point produced average gains of 18% over the following year and 38% over the following two years. For the Nasdaq Composite, the figures were 23% and 41% over the same intervals.
What to watch
The FOMC rate decision is the confirmable next step. A quarter-point increase would open a new tightening cycle and likely reset consensus for both indexes. Legendary fund manager Peter Lynch once cautioned that far more money has been lost by investors anticipating or preparing for corrections than was ever lost in corrections themselves. The level to watch on the tape: the first confirmed close in correction territory for either index, defined as a close 10% below the high.
Related reading
Filed by the newsroom of MarketPR on August 10, 2026. Source: finance.yahoo.com. Indicative figures are not investment advice.