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Are markets doomed or set for more gains?

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With the prospects for U.S. economic growth starting to look up, analysts are divided over whether that should mark a sell signal for markets.

"The current pace of jobs creation mirrors what forced the Federal Reserve's hand in the 1994 rate hiking cycle, which led to lower stocks and wider credit spreads," Hans Mikkelsen, global credit strategist at Bank of America-Merrill Lynch, said in a note dated Tuesday.

In June, U.S. non-farm payrolls surged by 288,000 new jobs, with the jobless rate falling to 6.1 percent, the lowest since September 2008.

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It's a key concern after Fed Chief Janet Yellen's testimony before Congress earlier this week included the comment that if the labor market continued to improve more quickly than expected, interest rate hikes would likely come sooner than more rapidly than currently foreseen.

In 1994, the economy took off and the Fed was forced to hike aggressively, he noted in a separate report earlier this month.

"Unlike today, in 1994, dealers could use their balance sheets when everybody wanted to sell bonds, mutual funds/exchange-traded funds owned a much smaller share of corporate bonds, and we had not been through a five-year unprecedented reach for yield prompted by the Fed's zero interest rate policy," he said. "Things could get a lot worse this time."

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Mikkelsen advises setting hedges and reducing long positions in risky assets, adding that the rally in U.S. Treasurys recently suggests there's already been some "rational risk reduction" in response to the jobs report. After touching a yield of around 2.65 percent as the release of the jobs data at the beginning of July, the 10-year Treasury yield has fallen to around 2.51 percent; bond yields move inversely to prices.

But not everyone expecting solid U.S. economic growth is also expecting market doom.

Goldman Sachs also expects the U.S. economy is healing, but it forecasts inflation will only rise gradually toward the central bank's 2 percent target.

Read More Why US stocks aren't overvalued, yet

"We see more slack in the labor market than the unemployment rate alone suggests," Dominic Wilson, a strategist at Goldman Sachs, said in a note Wednesday. "Although the unemployment rate itself has continued to fall more rapidly than we had expected, the stability of wage growth measures at low levels continues to give us comfort that there is little sign of tightness in the broad labor market yet."

Goldman now expects the first Fed rate hike in the third quarter of 2015, leaving another year of near-zero rates.

"In a world where real bond yields are lower for longer than normal, we think equity valuations are likely to remain at levels that feel uncomfortable to many investors, and could move higher still," Wilson said.

Even if the Fed hikes rates, Wilson doesn't necessarily expect the move would disrupt markets, as long as the increase was mostly "growth driven."

To be sure, Bofa's Mikkelsen isn't necessarily forecasting a repeat of the 1994 rate-hike scenario.

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"This scenario may not actually play out," he said in the note. "But clearly the likelihood of such development increases with good economic data."

By the same token, Goldman's Wilson noted that recent underperformance of U.K. equities, particularly the domestic-focused FTSE 250, as U.K. short-dated rates rose in recent months, suggests markets may not be thrilled if the Fed shifts toward a possible earlier-than-expected hike, and may warrant looking toward hedges.

"Protecting long equity positions with either a bearish view in front-end U.S. rates or long U.S. dollar positions – particularly against the euro, where policy is likely to remain firmly dovish – may thus make more sense than it did earlier in the year," Wilson said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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