It's like clockwork. The

Fed raises interest rates, and bang -- stocks surge higher, as equity players once again celebrate the death of interest-rate hikes and proclaim themselves ready to get on with the rally.

Not long after, it becomes clear there's nothing supporting the notion that the Fed is really done, other than stock market participants hoping against hope. It's become a bit of a sick pattern in the stock market, especially considering that the bond market, expecting higher inflation, has been steadily worsening for more than a year and a half.

"With every 25-point hike there was an immediate expectation that that's the last one," says Eddie Laux, head trader at

ABN Amro

. "Sometimes it lasts five minutes, sometimes a few days, but really not more than a week before people start cranking it in again."

But it doesn't appear the market is thinking that way this time out. Traders interviewed in the days leading up to Tuesday's

Federal Open Market Committee meeting acknowledge that even if the Fed hikes the target

fed funds rate by 50 basis points, to 6.5%, they and many of their colleagues don't believe the monetary policy folks will be finished there.

Thus, while many still expect some kind of "sigh of relief" rally -- just because a lot of people seem to view the Fed outcome as a good entry point to get into the market -- traders aren't confident it'll be sustained. And some feel the rally's already happened, based on the last two days of positive action.

"If the market doesn't continue

this week's uptrend, I think they'll say that the rate hike was built in," says Matt McDermott, program trader at

Cantor Fitzgerald

.

Market Counting on More Hikes

Almost certainly, several more rate hikes will continue to cramp the market's style in the coming months. The

Dow Jones Industrial Average and other largely nontechnology sectors have been more consistent in adjusting to the prospect of slower economic growth. The

Nasdaq Composite's process of revaluing itself has been much more violent, but it has constrained itself as well. As investors still view current price-to-earnings ratios as too steep, slowing consumer demand wouldn't benefit high-tech stocks any more than it would help any other stocks.

That's because the mindset among those involved in the stock market is not quite as blase about the Fed as it has been. The market's thinking now goes beyond waiting for the Fed to get out of the way so it can resume its stratospheric upward trajectory (as the Comp did in early February, after the Fed raised rates to 5.75%).

It would have thrilled the market if the Fed had eased off earlier, but now it appears that won't happen until there are definitive signs of a slowdown. At that point, while there'd be relief that the monetary policy committee was done hiking rates, the economy would experience slower growth and slower demand, and that's not a positive for the market.

"People are worrying it's starting to harm parts of the economy that are running smoothly," says Laux. "It looks like the action in the market is giving itself a lot of self-correcting blows, so to speak."

Recent Data Collide Inconclusively

The expectation of more hikes is due to a recent spate of economic reports showing that inflation is on the rise, including the most recent first-quarter

productivity and unit labor costs report and the

Employment Cost Index for the same period.

The theory among stock market participants has always been to "buy the last rate hike," viewed as a prelude to a time when the Fed will again have to start cutting interest rates. Being eternal optimists, some traders are thinking that way already, and it took only last week's drop in April

retail sales and the benign

Producer Price Index release for that aspiration to surface.

"The market might be hoping that the Fed is going to see that the consumer is maybe spent out," says Tony Cecin, manager of Nasdaq trader at

U.S. Bancorp Piper Jaffray

. "People are keeping their finger on the hope button." If consumer spending doesn't pick up, "maybe they don't do

50 basis points again."

But until these nuggets of information can be confirmed as evidence of a slowing in demand, and that the Fed has achieved what some regard as impossible -- the near-perfect soft-landing scenario, which implies slower, but still strong, economic growth, without rising inflation -- the retail sales and PPI reports are an anomaly.

That doesn't mean the market won't retain its proclivity to rally every time a decent piece of news is released. Thursday's rally, sparked by the retail report, and Friday's gain, using the PPI as a catalyst, are proof of that.

Those rallies do not a trend make, however. The Dow rallied sharply in November, after the Fed raised rates for the third time in this cycle. It hasn't held up, though. Last week, it closed at 10,609.37, about 24 points higher than where it closed Nov. 11 -- a few days before a Fed meeting.