US Economy

Markets vulnerable to tight financial conditions: Pro

Market vulnerable to tight financial conditions: Pro

Good news may still be bad newsat least for the first few months of 2014, according to Barclays' Barry Knapp.

Knapp, the head of U.S. equities at Barclays Capital, told CNBC on Thursday that markets are vulnerable to the Federal Reserve's looming interest rate hikes, adding that subsequent financial tightening and limited borrowing could affect equities.

While the Fed isn't expected to raise rates until 2015, a better-than-expected December employment report Friday could raise concerns about the pace of rate hikes, Knapp said.

Though such concerns wouldn't disrupt long-term economic recovery, he said, the first half of 2014 could be difficult if lending slowed.

"We think the market is vulnerable to a pullback related to tighter financial conditionsa long-winded way of saying good is going to be bad tomorrow," Knapp said on "Squawk on the Street."

(Read more: US claims slide as expectations brighten)

Floor of the New York Stock Exchange.
Getty Images

Data released by ADP on Wednesday suggested the December employment report released Friday may surprise on the upside. The private sector generated about 238,000 positions in December, the best month in 2013, according to the payroll services provider. That's a strong indicator to economists of what Friday's employment report holds.

(Read more: Private job creation is 'off and running': ADP)

"It was better than expected," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said on "Squawk on the Street," referring to the ADP report. "Most of the economic data the past month has been even better than what I thought. It would seem to be stronger employment would be consistent with that."

Time for market normalcy?

But Gary Kaminsky, the vice chairman of wealth management at Morgan Stanley, said the markets stopped worrying about the Fed's economic stimulus programs late last year—a development he attributed to the 's record highs through 2013. The markets feel the most "normal" they have since the 2008 financial crisis, he added.

"The most important thing that I've telling our advisers is that good news is now good news," he said on "Squawk on the Street." "For the last three years, bad news was good news in terms of quantitative easing. We sat here together for many, many years thinking bad news was good news for the markets. That's over."

Kaminsky, a former CNBC contributor, discounted fears about a significant correction next year and said investors should not look for a "mass exodus" of cash from bonds into stocks.

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"We will continue to see more money move into equities, but in a normalized fashion," said Kaminsky."

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street."

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