As the Federal Reserve gears up for a new rate-hiking cycle this week, one prominent market strategist warns that the S&P 500 could be heading for a sharp correction, with profit declines squeezing corporate guidance and investors bracing for tighter monetary policy. Macro Risk Advisors LLC predicts that the benchmark index may suffer a pullback of up to 10% as the central bank begins its tightening campaign.

The S&P 500 has already slipped nearly 1% so far in September, weighed down by surging energy costs and recent inflation data that pushed the 10-year Treasury yield above 5% for the first time since 2023. Those pressures have prompted traders to almost fully price in a 25-basis-point rate hike from Fed Chair Kevin Warsh on Wednesday, a sharp jump from just a 60% probability a week ago.

Dean Curnutt, CEO and founder of Macro Risk Advisors, said in a Monday research note that a move this week would bring more pain to equities. "We expect an 8% to 10% pullback in the S&P 500, with a potential second wave arriving in December," he wrote. The rate increase, he explained, would "squeeze margins for companies that can't pass costs on to consumers," triggering violent market swings for which many investors are unprepared.

Curnutt drew parallels between the current environment and what markets faced in 2018, when the S&P 500 peaked in September before tumbling 10% through October and November. He cautioned that the "Santa Claus rally failed to materialize" that year, as the market dropped again in December and ultimately erased nearly 20% from its peak.

The strategist's warning underscores growing anxiety on Wall Street as the Fed prepares to shift course, with many investors questioning whether corporate earnings can withstand higher borrowing costs and whether equity valuations have room to fall further.