Warsh Hike Could Be A Buying Opportunity In Six Months

Kevin Warsh's tough talk on inflation in Jackson Hole last week has markets pricing relatively high odds of a Fed hike at this month's FOMC meeting.

However, if Warsh does decide to raise rates with just weeks to go before the mid-terms, history argues for buying the hike, according to SocGen's Manish Kabra.

Kabra points out that equities typically weaken over the next 1-3 months after a Fed hike but often recover to fresh highs six months later. The exception is 2022, when the market struggled with a quantum of tightening over a compressed temporal window.

SocGen's house view is for a trio of Fed hikes beginning this month, but Kabra notes that the S&P has already de-rated by 15% to discount those increases, not as a renewed hiking cycle. This means profit expectations are soaring, rather than an actual price correction.