Wall Street Believes Single Rate Hike Won't Affect Bull Market in U.S. Stocks

On September 14, expectations for a Federal Reserve rate hike increased, with the market anticipating an 87% probability of a 25 basis point hike this week. Goldman Sachs, Morgan Stanley, and JPMorgan Chase believe that a single rate hike may not change the mid-term trend of U.S. stocks, as corporate earnings and economic growth remain the market's support. Historical data shows that sustained tightening and economic recession are the main triggers for bear markets in U.S. stocks. Since 1945, the S&P 500 has experienced 12 bear markets with declines of over 20%, six of which occurred after rate hike cycles that triggered economic recessions. Goldman Sachs points out that the market has already priced in expectations of more than three rate hikes in the coming year, with corporate earnings and balance sheets remaining robust, and a policy shift having limited impact on the stock market. Morgan Stanley warns that if inflation shocks lead to an increase in the 10-year U.S. Treasury yield, U.S. stocks may experience a technical correction of about 10%; however, if the yield increase reflects strong economic growth, the stock market still has room to absorb it. JPMorgan Chase believes that oil prices are a key variable, as sustained oil prices above $100 may raise inflation expectations and compress stock valuations. Currently, the S&P 500 is less than 2% away from its historical high, the 10-year U.S. Treasury yield is approaching 5%, and Nasdaq 100 index futures fell about 1.6% on Monday, with short-term market volatility likely to intensify.

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