LONDON — Stocks are heading for a bumper week, but there are many reasons to be wary, one strategist warned on Friday.

“In short, we don’t believe this rally,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, told CNBC’s “Squawk Box Europe.”

“We had tough later part of summer, there was focus on tightening of financial conditions, what was coming from the key central banks.”

“Nothing has changed in a fundamental manner. So we still think that we are going to see more problems ahead as this higher for longer rates profile beds in and starts to impinge on the real economy,” Ahmed said.

The pan-European Stoxx 600 index is on course for its best weekly performance since late March, according to LSEG data. That comes off the back of a dire October, which was its worst month of the year, and losses in August and September.

Stateside, the Dow Jones Industrial Average notched its best day since June on Thursday.

Along with equities, U.S. and European government bonds have also rallied this week as investors interpreted the Federal Reserve’s rate hold and surrounding commentary as a sign that rates have peaked and cuts are within view. That was despite Fed Chair Jerome Powell’s insistence that further hikes were not off the table — in line with central bank heads in the U.K. and European Union.

“If you look at Chair Powell’s speech, it had a hawkish bias to it,” Ahmed said.

Markets are focusing on the sharp increase in long rates, which is helping the Fed tighten financial conditions — but a hot jobs print on Friday and another sticky print on inflation could well force it to implement another hike, Ahmed added.

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BOE’s supersized surprise hikeThe Bank of England raised interest rates by 50 basis points, bringing rates to 5%. Markets were betting on a 25-basis-point hike. But May’s inflation reading for the U.K. was a scorcher: Inflation last month remained unchanged from April, while core inflation actually rose from 6.8% to 7.1% year over year. If inflation remains stubborn, expect more surprises from the BOE.

Turkey’s welcome hikeTurkey’s central bank — under its new governor Hafize Gaye Erkan — doubled the country’s interest rate from 8.5% to 15%. That goes some way in tackling Turkey’s soaring inflation which, aided by President Recep Tayyip Erdogan’s insistence on keeping rates low, hit 39.6% in May. But some analysts criticized the hike for being too modest — most were expecting rates to hit 20%.

Capital requirements hikeOn the second day of his Senate testimony, Federal Reserve Chairman Jerome Powell said new regulations  aren’t likely to apply to banks below $100 billion in assets. Those rules would increase the amount of capital banks need to maintain, among other conditions. Separately, FDIC Chair Martin Gruenberg said the rules are expected to kick in next year.

Mixed marketsU.S. markets mostly rose Thursday, as the S&P 500 and Nasdaq Composite snapped their three-day losing streak, while the Dow Jones Industrial Average remained virtually unchanged. The pan-European Stoxx 600 lost 0.51%, but one stock had a great day: shares of British online grocer Ocado rocketed 32.05% amid speculation that Amazon might buy the company.

[PRO] Bearish market, overvalued stocksEven with the recent rally in the S&P 500, the index is still trying to climb beyond the high it reached in January 2022 — which would usher in an official bull market. Yet market strategists from UBS and JPMorgan Chase and are already warning that the stock market may be overvalued.

Investors have been lulled by a sense of security that inflation in the U.S. is falling, albeit slower than hoped, and interest rates will gradually fall as the beast is slayed. That’s the engine behind markets’ astounding rally in recent weeks.

But investors are being rudely returned to a world they thought they had put behind them — a world, in other words, of continual rate hikes. Fed Governor Michelle Bowman thinks “additional policy rate increases will be necessary” — to the extent that they are “sufficiently restrictive” — so that inflation will drop further. Bowman, who is on the Federal Open Market Committee, essentially echoed Powell’s Wednesday comments that more rate hikes are necessary despite June’s pause. (“Pause” is a word Powell dislikes, by the way, which sheds light on how the Fed is thinking.)

The prospect of more hikes might be why investors are fleeing to technology stocks. Amazon, Apple and Microsoft all climbed yesterday. It sounds contrary, I know. Don’t tech stocks, dependent on growth, suffer the most from high interest rates, which erode the value of future earnings?

My sense is that investors see artificial intelligence as a moat around earnings, a barrier which rates cannot encroach. Well, that’s the hope, anyway.

Still, excitement over AI might not be enough to sustain the whole market. Despite adding close to 1% Thursday, the Nasdaq is on track to break its eight-week winning streak. Likewise, the S&P’s 0.37% gain might be too little to preserve its five consecutive weeks of closing in the green.

Some analysts hoped that bullish markets would charge forward, seeing red. But the hue in sight now seems less a matador’s red cape than traffic-halting red lights.

Correction: This article has been updated to correct the date of the S&P’s all-time high.

CNBC’s Jim Cramer on Thursday said the Federal Reserve no longer needs action to tame inflation — and it’s because of the banking crisis.

Cramer said 10 days ago that investors were expecting a possible 50-basis-point interest rate hike from the Fed based on Chairman Jerome Powell’s recent response to January inflation data and the strong labor market.

Powell warned that if inflation remained strong, he expected rates to go “higher than previously anticipated” and possibly faster than a quarter point at a time.

It seemed like a 50 basis point rate hike was coming until the collapse of Silicon Valley Bank, Cramer said.

Federal Reserve Chairman Jerome Powell on Tuesday cautioned that interest rates are likely to head higher than central bank policymakers had expected.

Citing data earlier this year showing that inflation has reversed the deceleration it showed in late 2022, the central bank leader warned of tighter monetary policy ahead to slow a growing economy.

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“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in remarks prepared for two appearances this week on Capitol Hill. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Those remarks carry two implications: One, that the peak, or terminal, level of the federal funds rate is likely to be higher than the previous indication from the Fed officials, and, two, that the switch last month to a smaller quarter-percentage point increase could be short-lived if inflation data continues to run hot.

In their December estimate, officials pegged the terminal rate at 5.1%. Current market pricing moved higher following Powell’s remarks, to a range of 5.5%-5.75%, according to CME Group data. Powell did not specify how high he thinks rates ultimately will go.

The speech comes with markets generally optimistic that the central bank can tame inflation without running the economy into a ditch.

Stocks fell sharply while Treasury yields jumped after Powell’s remarks were released. Market pricing also titled sharply to a strong possibility of a 0.5 percentage point interest rate hike when the Federal Open Market Committee meetings March 21-22.

January data shows that inflation as gauged by personal consumption expenditures prices — the preferred metric for policymakers — was still running at a 5.4% pace annually. That’s well above the Fed’s 2% long-run target and a shade past the December level.

Powell said the current trend shows that the Fed’s inflation-fighting job is not over, though he noted that some of the hot January inflation data could be the product of unseasonably warm weather.

“We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” he said, adding that the road there could be “bumpy.”

Powell speaks Tuesday before the Senate Banking, Housing and Urban Affairs Committee then will address the House Financial Services Committee on Wednesday.

The chairman faced some pushback from Democrats on the Senate panel who blamed inflation on corporate greed and price gouging and said the Fed should reconsider its rate hikes. Sen. Elizabeth Warren, D-Mass., a frequent Powell critic, charged that the Fed’s inflation goals will put 2 million people out of work.

“We’re taking the only measures we have to bring inflation down,” Powell said. “Will working people be better off if we just walk away from our jobs if inflation remains at 5, 6%?”

The Fed has raised its benchmark fund rate eight times over the past year to its current targeted level between 4.5%-4.75%. On its face, the funds rate sets what banks charge each other for overnight lending. But it feeds through to a multitude of other consumer debt products such as mortgages, auto loans and credit cards.

In recent days, some officials, such as Atlanta Fed President Raphael Bostic, have indicated that they see the rate hikes coming to a close soon. However, others, including Governor Christopher Waller, have expressed concern about the recent inflation data and say tight policy is likely to stay in place.

“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

Powell noted some progress on inflation for areas such as housing.

However, he also noted “there is little sign of disinflation” when it comes to the important category of services spending excluding housing, food and energy. That is an important qualifier considering that the chairman at his post-meeting news conference in early February said the disinflationary process had begun in the economy, remarks that helped send stocks higher.

Markets mostly had expected the Fed to enact a second consecutive quarter-point, or 25 basis points, rate increase at the Federal Open Market Committee meeting later this month. However, as Powell spoke markets priced in a 69% probability of a higher half-point increase at the March meeting, according to CME Group data.

Powell reiterated that rate decisions will be made “meeting by meeting” and will be dependent on data and their impact on inflation and economic activity, rather than a preset course.

U.S. stock index futures were under pressure Thursday, putting the major averages to give up the solid gains made in the previous session.

Futures contracts tied to the Dow Jones Industrial Average dropped 1.9%, or 590 points. S&P 500 futures were down 2.3%, while Nasdaq 100 futures shed 2.7%. All three futures contracts had earlier been trading in positive territory.

The 10-year Treasury yield resumed its massive June run on Thursday, reversing higher overnight. The 10-year yield was last around 3.44% after ending May at 2.84%.

Those moves come after the Federal Reserve implemented its largest interest rate hike since 1994 on Wednesday. The Fed raised rates by 75 basis points, as was widely anticipated.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Federal Reserve Chairman Jerome Powell said at a news conference following the decision.

Stocks took a leg higher Wednesday after Powell said that a 50 or 75 basis point increase “seems most likely” at the next meeting in July, indicating the central bank’s commitment to fighting inflation. Powell did caution, however, that decisions will be made “meeting by meeting.”

The major averages ended the session higher, with the Dow and S&P 500 both snapping five-day losing streaks. The 30-stock benchmark added about 304 points, or 1%, while the S&P 500 advanced 1.46%. The tech-heavy Nasdaq Composite was the relative outperformer, rising 2.5%.

However, market sentiment appeared to sour once again Thursday as other central banks around the globe adopted more aggressive policy stances.

The Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.

“Central banks in Switzerland and Hungary hiked rates by more than anticipated (while Brazil hiked inline and Taiwan raised actually a bit less), continuing the trend of aggressive policy tightening globally (the BOE is expected to increase rates in less than two hours while the world piles pressure on the BOJ to defend its 25bp target),” wrote Adam Crisafulli of Vital Knowledge.

“Meanwhile, gas prices are climbing in Europe as Russia dials back supplies further, creating increased inflationary pressures for the ECB. The combination of central bank tightening and upward pressures on energy costs is pushing yields higher around the world, undercutting equity sentiment,” he said.

Tech shares moved lower in premarket trading after a bounce on Wednesday, with Tesla, PayPal, Nvidia, Amazon and Netflix all down more than 3%.

The major averages entered Thursday’s session down for the week and well below record levels.

The S&P 500 and Nasdaq Composite are both in bear market territory, down roughly 21% and 32% from their all-time highs in January and November, respectively. The Dow, meantime, is 17% below its Jan. 5 all-time intraday high.

Rampant inflation, which is at the highest level in 40 years, has weighed on the major averages, as have fears around slowing economic growth and the possibility of a recession.

Morgan Stanley chief U.S. equity strategist Michael Wilson warned that the inflation problem won’t be solved overnight.

“It also raises the risk of a recession because you’re bringing forward rate hikes even faster, and I don’t think it’s going to help the bond market,” he said on CNBC’s “Closing Bell.”

Economic data out Thursday includes weekly jobless claims numbers, with economists surveyed by Dow Jones forecasting a 220,000 print. Housing starts will also be released, while Adobe and Kroger will report quarterly updates.