But what if the Fed does hike?

Inflation and rate hike worries weighed on government bonds for much of this week - although they got a bit of a break after Fed Governor Christopher Waller eased concerns about tighter policy.

Traders are now pricing in a 50-50 chance of a hike or a hold - but if this week has shown anything, it's that markets are clearly on edge about interest rates.

So, if the Fed does hike later this month, what might the reaction be in stock markets?

In terms of sectors, a repricing of Fed expectations would be the biggest headwind for semis, personal & household goods and utilities as those "have the largest negative sensitivities to a move in rates," according to the report.

On the flipside, airlines, banks and energy have the biggest positive sensitivities to rates, the strategists added - so they should get the most support from a potential repricing.

"A September Fed hike could put further upside pressure on bond yields, weighing on equity multiples," strategists said in a BofA Global Research report.

The bank's economists are expecting a 25 basis point hike from the Fed in September, with more to come later in the year.

"Market pricing for hikes in total by the December meeting is currently around 40bps below the 75bps that our economists expect," the strategists pointed out.

"US 10-year real bond yields - which are closely tied to Fed pricing and are the discount rate for global equities - could therefore see further upside pressure on a September hike and continue to weigh on equities, with the c.10bp rise in the US 10-year real yield over the past week explaining all of the Stoxx 600 decline seen over the period."