Stocks are poised to handle a small hike in rates, according to the charts

Just as the markets were settling into the idea that the Fed's rate cut cycle is complete, we're now grappling with the possibility of a rate hike in response to prolonged inflationary pressures. In this week's column, I'm going to employ our visual approach to investing and try to determine whether the sharp rally in growth stocks — and the broader market in general — is on borrowed time due to elevated pricing pressures, and whether we need to become defensive in our portfolios. Recent consumer price index and producer price index readings were elevated, confirming the inflationary pressures from the geopolitical shock of the Iran war. It wasn't only energy boosting the numbers, however: the core readings, excluding food and energy, were also elevated, partly due to a re-acceleration in housing costs. CME Group fed funds futures show that just three weeks ago, there was almost no chance of a quarter percentage point hike to a range of 3.75–4.00% from the current target range of 3.50–3.75% by year-end. Today, that chance has elevated to 50-50 at the October meeting, and a 79% chance of a quarter-point hike by December. Could the market handle not only the end of the easing cycle, but a small hike in rates in response to lingering inflationary pressures? I believe it could, and a trusted research source of mine, Ed Yardeni, agrees as well . …