Morgan Stanley strategist: Amid Fed rate hikes, high-quality US stocks are expected to outperform the broader market.

Morgan Stanley strategists said that if the Fed raises rates as expected this week, high-quality U.S. stocks are likely to deliver excess returns. The strategists noted that, based on historical patterns, quality blue-chip stocks tend to outperform the market during the first rate hike phase of a tightening cycle. A research team led by Michael Wilson wrote in a report: "It is also worth noting that cyclical stocks and momentum stocks typically outperform after the first rate hike." The current driver of rising rates is strong economic growth, rather than fiscal sustainability concerns or higher-than-expected inflation. The main subsequent risk is that if the Strait of Hormuz remains blocked and China's consumption recovers, oil prices could suddenly spike, triggering an unexpected inflation shock. This could "turn what currently appears to be a moderate, preventive policy adjustment into a rate hike cycle that the market sees as lasting longer."