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Rate hike could cause major market moves: Boockvar

Expect some major moves in the market Thursday if the Federal Reserve raises interest rates, market analyst Peter Boockvar said Tuesday.

He pointed to several factors that may foreshadow the moves, including unusual action in the short end of the Treasury curve, the strengthening dollar and a rally in the stock market.

"It's very possible that the stock market rallying back to near 2,000 in the S&P is rallying itself into a potential rate hike," the chief market analyst with The Lindsey Group said in an interview with CNBC's "Power Lunch."

That could possibly lead the Fed to think the market could handle a possible rate increase, he noted.

However, he added that the market gains may also just be major positioning by a few different players.

"Bottom line is this kind of action tells you that we could be in for some major moves on Thursday if they do raise interest rates," said Boockvar, also a CNBC contributor.


Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.
Getty Images
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.

The Federal Open Market Committee meets Wednesday and Thursday and could decide to raise interest rates for the first time in more than nine years.

If the central bank does raise rates but then follows it up with dovish commentary on future hikes, Boockvar expects a short-term rally from 2-4 p.m. ET Thursday. However, the logistics of a rate hike are going to be an issue for the markets, he said, and he expects "some trouble" after that short-term rally.

On the other hand, if the Fed doesn't lift off, he still expects the same short-term rally, but then "people have to ask themselves, 'We're going to be discussing a potential rate hike all over again for the next month and a half, and what good is that?'"

Meanwhile, strategist John Canally pointed out that a Fed rate hike isn't usually the end of a bull market.

In fact, in eight out of the nine Fed rate hikes since 1950, stocks were higher the first year after the hike, he told "Power Lunch."

"It's not the end of the economic expansion; it's really just the next phase of it," the investment strategist and economist for LPL Financial said.

While Canally thinks the central bank will most likely lift off in December, he said the timing of the hike is not that important.

"The how far and how fast is much more important for the economy and markets," he noted.

Ben Willis, a senior floor trader with Princeton Securities, believes the market is signaling the bull run will continue after a rate hike.

That telling sign is the downward trend on the CBOE Volatility Index, or VIX, which measures volatility in the market, he said.

"You'll see the VIX continue to trade down because the equity markets are telling you, 'We know that there is a rate hike coming, and that is going to be an indication bullish for earnings and stocks not bearish,' " he told "Power Lunch."

"There may be a knee-jerk reaction to the downside but the professional investors are telling you that the risk is coming off, therefore the VIX is coming in."

That said, while the bull run will continue, the market will probably see only single-digit gains over the next couple of years, said Dave Donabedian, chief investment officer of Atlantic Trust.

He believes the key issue is whether earnings are going to recover.

"We're looking for a bit of a recovery in earnings beginning in the fourth quarter this year and into the first half of 2016," he told "Power Lunch."

"If that comes to pass and if, as we expect, whenever the Fed starts to raise rates, it's a relatively slow path, we expect the bull market to continue for the foreseeable future, though with a lower return profile than what we've enjoyed for most of the last six years."

Where to invest?

So where should investors look in this market? Phil Blancato, CEO of Ladenburg Thalmann Asset Management, likes consumer discretionary stocks.

"We've kind of forgotten a little bit about what really matters to our economy. What really matters is the strength of the consumer," he said. "We're going into the holiday spending season, and the consumer's in great shape."

Looking overseas, fund manager Dale Winner sees opportunities in China, Europe and Japan, which he thinks offers the cheapest valuations and best earnings prospects.

While China's market has been turbulent, he said that doesn't matter as much since he's a stock picker.

"We see great valuations, great expectations in terms of what the policy stimulus tools are. Monetary policy can come down fiscal stimulus and structural forms," said Winner, portfolio manager of the Wells Fargo Advantage International Equity Fund.

However, he told "Power Lunch" that Europe is the best value now for buying since its quantitative easing program is just beginning.

"Also we have these earnings tailwinds in terms of lower credit, lower currency, lower commodities," he said. "In the big picture of things European earnings are still 40 percent of their prior peak."

CNBC's Ritika Shah, Jennet Chin and Brenda Hentschel contributed to this report.

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