Will the Rout End When the Fed Finally Moves?

When the market gets sick, analysts look for cures. For now, they've settled on an interest rate hike by the Federal Reserve.

Uncertainty about future rate hikes and concerns that the Fed is behind the curve on inflation have sent stocks swooning over the past week. On Monday, the Dow Jones Industrial Average fell below 10,000 and the Nasdaq broke below 1900 for the first time since March.

Analysts say investors are worried about the timing and magnitude of a rate hike and would feel a whole lot better if the Fed just went ahead and got it over with.

"I believe that the stock market might have rallied if Fed officials started showing more action and talked less," said Ed Yardeni, chief investment strategist at Prudential Securities. "I believe that the stock market will perform better once the Fed starts raising rates, which could now occur at the June meeting."

That's not to say the market couldn't see some kind of relief rally in the interim, of course. Several analysts believe that stocks have become very oversold recently.

Jason Goepfert of SentimenTrader.com, noted that over 20% of stocks trading on the NYSE made new 52-week lows Friday. Over the last 20 years, this has often presaged a big rally in the market. In fact, he said, the average gain over the ensuing 90 and 120 days has been 16.8% and 19.2%, respectively.

Still, other market watchers say it will be hard for stocks to mount this kind of rally until the Fed pulls the trigger. Historically, the market has fared poorly in the runup to a rate hike but has improved once rates started to rise, according to Merrill Lynch.

So does the market need a rate hike to pull it of its recent funk? Well, that's debatable.