Merrill Lynch CIO: Markets are cheering a Fed hike

Markets appear to shrug off Fed

The markets are cheering a likely Fed rate hike for three reasons, Merrill Lynch CIO Christopher Wolfe said Thursday.

"One, 2015 is mostly over, so they've already gotten to look through the earnings season; they're looking at 2016," Wolfe told CNBC's "Squawk Box." "The signs of a little bit of growth [next year] are there."

The Fed has these stocks seeing red

"Two is, the Fed being more clear actually reduces uncertainty in markets," Wolfe said. "They've made clear the slope of their hikes is actually quite low, so that's encouraging."

He also said the market has weathered recent geopolitical events well, which also adds to the positive sentiment around a Fed rate hike.

"The main features of the market — high-profit margins and the like — are still intact, so I think investors are looking through a lot of the issues that are out there right now," he said.

Wolfe made his remarks a day after the Fed released the minutes from its October meeting, which revealed that most policymakers agreed conditions for a rate hike "could well be met by the time of the next meeting."

U.S. equities closed near session highs on Wednesday, after extending gains following the release of the minutes.

The next meeting of the Federal Open Market Committee is Dec. 15-16.

Be careful, Fed

The markets may be cheering on the Fed now, a tighter U.S. monetary policy could lead to a meltdown in Chinese stocks, Fidelity Investments' Jurrien Timmer warned on "Squawk Box."

"What's key to the market is the very delicate balance between the fact that China is slowing and needs to ease, and the U.S. is heading into a late cycle and wants to tighten," the firm's director of global macro said. "They're very interrelated because China has the impossible trinity where it can't have free monetary policy and a fixed exchange rate."

"When the Fed raises rates, China is essentially tightening when it needs to ease," he said.

The Chinese equity market tanked last summer amid economic growth concerns before bouncing back.

Shanghai composite 3-month chart