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The Tell: Will the Dow drop below 30K? Investors focus on Fed as stock market threatens test of June lows.

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Stocks are looking wobbly as the Federal Reserve prepares to deliver what’s expected to be another jumbo rate hike.

With the S&P 500
SPX,
-1.13%

sliding back toward its June low below 3,670, the question of whether the Dow Jones Industrial Average
DJIA,
-1.01%

would slide back below the 30,000 level was trending Tuesday. The Dow fell 313.45 points, or 1%, Tuesday to close at 30,706.23, leaving the blue-chip gauge up 2.7% from the perhaps psychologically important 30,000 threshold. The Dow closed at its 2022 low of 29,888.78 on June 17.

The S&P 500 fell 1.1% on Tuesday to finish at 3,855.93. It’s up 5.2% from the large-cap benchmark’s June 16 closing low of 3,666.77. Those mid-June lows are crucial, with analysts warning that a test could soon arrive amid worries over the economic outlook tied to the Fed’s aggressive tightening pace and hikes by other central banks.

Read: The stock market has rallied on day of every Fed rate-hike decision in 2022. Could it happen again Wednesday?

The Fed is expected to deliver a rate increase of 75 basis points, or 0.75 percentage points, when it concludes its two-day meeting on Wednesday, with some traders and analysts penciling in the outside chance of a full percentage-point increase. Investors will be focused on the updated forecast of rate expectations produced by Fed policy makers — the so-called dot plot — for clues where the fed-funds rate is likely to peak — a level known as the terminal rate.

See: Fed-funds rate could end up as high as 5%, says overseer of $1.3 trillion in assets

The stock market’s fall over the past weeks has priced in a 75-basis-point hike and a median Fed forecast for a terminal rate around or slightly below 4.25%, wrote Tom Essaye, founder of Sevens Report Research, in a Tuesday note. An outcome in line with that scenario would be unlikely to result in a significant move in either direction, “and importantly it does not make a retest of the June lows any more likely than it is today,” he wrote.

A rate hike of 100 basis points and/or a median terminal rate forecast above 4.5% would be a different story: “This outcome would confirm market expectations that the Fed is even more hawkish than previously feared, and it would further pressure stocks and at this point a test of the June lows would become likely barring a material surprise,” Essaye said. “Defensive sectors and low-volatility ETFs should outperform, but only relatively, and we’d expect all 11 S&P 500 sectors to be lower on the day,” Essaye said.

Related: Why investors fear a full-percentage-point Fed rate hike would ‘unnerve’ Wall Street

The Fed will announce its rate decision at 2 p.m. Eastern on Wednesday, with Fed Chair Jerome Powell set to hold a news conference at 2:30 p.m.

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