Investors tend to dread rate hikes, but some Wall Street pros say not to fret too much if the Federal Reserve raises interest rates this year.

Odds are high that the Fed will hike rates at least once in the remaining months of 2026. As of Thursday afternoon, markets were pricing in a 71.8% chance that the central bank raises rates at its September meeting next week, according to the CME FedWatch tool. By the December meeting, investors think there are 63.5% odds that the Fed hikes at least twice.

Controlling short-term interest rates is one tool the central bank has to slow or stimulate economic activity, allowing it to fight inflation or support job growth. Inflation has remained sticky in recent months, coming in at 3.4% year-over-year in July, and so investors expect the Fed will move up interest rates to weigh on rising consumer prices.

Historically, rate hikes have meant trouble for stocks. According to LPL Financial, since 1994, the S&P 500 has delivered negative returns in the six months following the first rate increase in a hiking cycle.

And still fresh in investors’ minds is 2022, when an onslaught of rate hikes that brought the fed funds rate from near zero to over 5% in a matter of months sank the S&P 500 by 20% that year.

But that’s all history. What’s the outlook for stocks like this time around?

One positive factor the market has going for it is that the huge amounts of AI spending from hyperscalers is still fueling outsized earnings growth, said Whitney Stewart, a client portfolio manager at Sterling Capital Management.

S&P 500 earnings growth expectations are in the double digits for 2027, Stewart pointed out. If the AI spending outlook remains intact, it should be enough to counterbalance any dampening optimism from rate hikes, he said.

LPL made a similar point in their note. The firm compared today’s environment to 1997, when the S&P 500 continued its furious rally despite Fed rate hikes as investors remained optimistic about the internet.

Another thing stocks have going for them is that inflation, while sticky, seems to be moderating. It’s down from 4.2% peak in May. That should allow the Fed to move fairly slowly, and data shows that speed matters when it comes to rate hikes, as it allows investors more time to process the moves.

Kevin Gordon, the head of macro research and strategy at Charles Schwab, said in a client note on Thursday that when the Fed has begun a slow tightening cycle, the S&P 500 has risen by an average of 10.5% in the following year. Meanwhile, when the tightening cycle has been quick, stocks have dropped by an average of 3.6% in the following 12 months, he said.

“If we see the Fed adopt an elevator response — hiking rates in small increments, perhaps at every other meeting — stocks should be able to digest the relatively slow tightening process,” Gordon said.

The quantity of hikes matters as well. While in 2022, the Fed was fighting inflation that rose above 9%, it’s unlikely that the central bank will need to employ as many hikes as they did then, meaning any drawdown in stocks would be less severe than it was then.

“The Fed is kind of dealing with that last little residual on inflation,” said Mike Reynolds, vice president of investment strategy at Glenmede. While stocks could reprice after a hike, Reynolds said that he “wouldn’t expect as my base case a large sustained drawdown consistent with what we saw in 2022 if the Fed does decide to hike.”