US Markets

Markets may move higher on Fed rate hike: Morgan Stanley's Parker

Will rate hike hurt equities?

The Federal Reserve will likely raise interest rates this year, and when that happens, stocks may actually move higher, Morgan Stanley U.S. equity strategist Adam Parker said Wednesday.

"There's a risk that the market goes much higher, that there's actually a bit of a relief. I think the Pavlovian reaction will be people sell if the Fed ruins the cycle. I think the reality is it's not going to affect that much," he said in an interview with CNBC's "Closing Bell."

The central bank's near-zero interest rate policy has buoyed stocks in recent years and many fear a rate hike will send markets lower. At the end of its two-day meeting Wednesday, the Fed said it would keep rates near zero.

The latest CNBC Fed Survey, released Tuesday, shows a majority on Wall Street anticipate a rate rise in September, although that majority has dwindled from the last survey.

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BlackRock's chief investment officer of fundamental fixed income, Rick Rieder, places the odds at 60-40 that the Fed will raise rates in September instead of December.

It's a move that he said makes sense, noting that more jobs have been created in the last two years than the prior 13 years combined.

With current rates near zero, "we're at such excessive emergency conditions that it doesn't make any intuitive sense that we're here," he told "Closing Bell."

"If you move the interest rate 25 basis points from such an incredibly low level, what's the big deal? I don't think there are any implications for economy or the markets."

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Morgan Stanley's Parker is looking for slow growth in the economy, slow reflation and slow entrenchment from the Fed.

"We're constructive on the U.S. equity market because we have that backdrop and I've got bottom-up earnings too low, [and] a likelihood the U.S. economy is a little bit better in the second half than the first half," he said.

Plus, despite the fact that the is about 1 percent from its all-time high, "I don't think sentiment is very ebullient."

He sees nothing that would indicate a big top in the market, such as deteriorating economic conditions, arrogance from corporate management teams or fear about the credit cycle.

BlackRock's Rieder also isn't too concerned about the effect of a rate hike on the bond market, thanks to the "tremendous" demand from buyers in Europe and Japan. That means rates will likely only drift moderately higher, he said.

"The Fed has this historic window," he said. "You've got a tremendous buyer base and you've got monetary policy around the world that is easy. It means that your move is going to be dulled by what the rest of the world is doing."