When the Fed finally raises rates, stocks will go nowhere

As investors anticipate that the Federal Reserve will raise rates in a few months, they are also contemplating what this means for stocks.

In a note Tuesday, Barclays' Jonathan Glionna noted that rate hikes happen when the economy is in good shape, meaning corporate earnings are likely also strong.

Stocks rallied after previous rate hikes because earnings growth offset lower valuation multiples, which investors reduced in reaction to higher rates - higher rates raise the cost of borrowing for companies, impacting profits.

However, earnings growth is lukewarm this time. And so while stocks likely won't rally following rate hikes, Gilonna doesn't see rate hikes sending stocks south, either.

"There is no need to fear rate hikes," Glionna wrote. "That is the conclusion we draw from the strong historical performance of equities at the start of rate hike cycles. Still, we do not project additional gains for the S&P 500. The reason is because earnings growth is unusually slow.

Barclays maintains their 2015 price target at 2100. On Wednesday, the S&P 500 was trading at around 2,115.

As the chart below shows, previous earnings growth dwarfs the current situation.

We previously noted that during the first four to six months of a rate hike, stocks usually rally.

More precisely, Barclays notes that on average, the S&P 500 rallied 2%, 4% and 6% in the three, six and twelve months following every rate hike since 1980. Half the time, they turned negative after the first three months, but continued to rally afterwards.

This time, Barclays doesn't expect stocks to have the same success.

Here's Barclays' chart showing how stocks performed in the periods before and after rate increases.