I’m not buying the Fed hike, figuratively speaking.

As Donald Trump reminded Kevin Warsh early this week, while chatting with reporters in the Oval Office, he’d rather the Fed didn’t raise rates this month. Or ever.

Indeed, if it were up to Trump (and it kinda is), Warsh would lean towards lower rates, inflation be damned.

But markets were convinced enough by Warsh’s tough talk on inflation in Jackson Hole last week that traders are pricing relatively high odds of a hike at this month’s FOMC meeting.

If Warsh does risk Trump’s ire by raising rates with just weeks to go before the mid-terms, “history argues for buying the hike,” literally. That’s according to… well, to history, but the quote’s from a Tuesday note by SocGen’s Manish Kabra.

The table above makes the case that after a post-hike adjustment period, equities will likely trade stronger six months down the road if Warsh raises rates.

“[E]quities dislike the restart of Fed tightening, with the S&P 500 typically weakening over the next 1-3 months, but six months later, the market has often recovered to fresh highs,” Kabra said.

The exception’s obviously 2022. (It’s, um, hard for stocks to digest that quantum of tightening over such a compressed temporal window.)

Although SocGen’s house view is now for a trio of Fed hikes beginning this month, Kabra noted that the S&P’s “already de-rated by 15%,” effectively discounting those increases, just “not a renewed hiking cycle.” (Emphasis mine.)

The figure on the left, above, shows you the discounting Kabra means. Importantly, that de-rating’s courtesy of soaring profit expectations, not an actual price correction. I’m not saying Kabra’s “wrong,” but that’s a distinction worth making.

The figure on the right just argues for the primacy of the curve in determining what counts as “tight” policy.

“While inversion does not guarantee recession, it has historically preceded ~20% equity drawdowns,” Kabra went on. “And we still don’t see inversion in most scenarios.”