The stock market has misread signals from the Fed and a pivot on rate hikes is still far from happening, research firm says

According to a Monday note, investors shouldn't hold their breath when it comes to a pivot from the Federal Reserve.

The investment research firm said the stock market misinterpreted the Fed Chairman's refusal to give future rate hike guidance and instead focused on incoming data to determine its next moves.

Powell's comments that future rate hikes could potentially be less than the 75 basis point rate hikes that happened in June and July led to a more than 10% rally in the S&P 500.

It's not so fast according to the man. According to the analysts at the firm, there will be two rate hikes by the end of the year. The Fed Funds rate is currently 2.5%.

"Inflation is easing but the US job market remains too hot for investors' own good," said the company. More than half a million jobs were added to the US economy in July.

According to Lombard, the Fed Funds Rate is nowhere near neutral.

The neutral policy rate is not known by the Fed or anyone else. It's hard to argue that neutral is 2.5% with the rate of job creation still solid and wage growth running at 5.75%. There is a long way to go for the funds rate.

According to the note, the stock market won't do well if the yield curve is inverted and the economy is not doing well.

The stock market is caught between a limited scope for multiple expansion and a poor earnings outlook. There is a high bar for material re-rating in the face of Fed hikes and negative earnings revisions.

The S&P 500 is down more than 10% year-to-date, but has rallied more than 10% from its mid-June low after a perceived semi-dovish pivot from the Fed. It's not expected that stocks will see big moves into the year- end.

A low speed limit for equities is implied by the intensifying headwinds to profitability.