Macro Risk Advisors LLC is warning that a fresh tightening cycle could land soon and hit equities where it hurts. If the Fed raises rates, the firm argues, companies that cannot push higher costs onto customers will see margins squeezed, earnings expectations dim, and volatility could slam a market currently ill-prepared for such moves.
September has lived up to its reputation as a headache for stocks. The S&P 500 is down nearly 1% so far in the month, historically the year's soft spot, as energy stays pricey and recent inflation readings bite. As a result, the US 10‑year Treasury yield has climbed past 5% - a level not seen since 2023. Traders have now almost fully priced in a quarter‑point hike by Fed Chairman Kevin Warsh on Wednesday, up from roughly 60% odds just a week earlier.
On Monday, Dean Curnutt, who leads Macro Risk Advisors as its chief executive officer and founder, told clients that a Wednesday hike would likely bring more market pain. "We expect an 8-10% pullback in S&P with a potential second leg in December," he wrote, adding that rate hikes will "compress margins in companies that cannot pass costs through" and spark a volatility jolt.
He likens today's backdrop to 2018, when the S&P 500 topped out in September, then slid about 10% over October and November. "The Santa Claus rally did not come," Curnutt cautioned, noting the market legged lower again in December and ultimately fell almost 20% from its peak. With that history, he said "a defensive posture is the correct approach," and he expects another leg down in December if multiple Fed hikes arrive "into a K-shaped, low-churn economy."
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If borrowing costs rise and profits get squeezed, markets can reprice quickly. For everyday investors, that means wider swings and a tougher backdrop for companies that lack pricing power. Watching rate expectations, margin commentary on earnings calls, and whether the 2018 pattern starts rhyming again will tell you a lot about where risk is building.
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