Best game plan for rising rates: Pro
One sector stands out in the rising-interest-rate environment that lies ahead, JPMorgan Chief Global Strategist David Kelly said Wednesday.
"I think the first thing is for people to realize why rates are going to continue to go up here," he said. "We've got lousy demographics, which means we don't have much labor force growth, which means only a little economic growth'll actually push that unemployment rate down.
"Second, if you look at new-home sales, new-vehicle sales in June, the U.S. economy's going to produce enough economic growth to do that. So, I think unemployment's going to come down.
"Third thing is, if the unemployment rate comes down, the Fed is going to remove $1 trillion worth of purchases from the bond market, and that means rates are going to go up."
On CNBC's "Fast Money," Kelly said that there was one sector that had "high beta to the equity market overall" and would not be hurt by rising rates.
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"The obvious one is technology," he said. "That does the best, relative to both beta to the market and also higher rates do not have a negative impact on tech in the way they do on other sectors."
Kelly's other favorite rising-rate sectors were financials and consumer cyclicals.
But Kelly didn't suggest eliminating them from portfolios.
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"They have a place, but they have to be 'underweight,'" he said. "Something like utilities has two strikes against it. One, it is defensive, so you don't get the full kick from a rising equity market. But also, it's being used as a bond substitute."
Kelly also warned against defaulting to dividend stocks.
(Read more: Apple stock heading toward $600 per share, pro says)
"I'm just looking for the growth," he said. "The higher the dividend is, the more people are buying it for as a bond substitute, and that's what you really want to try and avoid when rates are rising."
— CNBC's Stephanie Landsman contributed research to this report. Follow her on Twitter @StephLandsman.
Trader disclosure: On July 24, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long C; Karen Finerman is long JPM; Karen Finerman is long GOOG; Karen Finerman is long M; Karen Finerman is long TGT; Karen Finerman is long OCR; Karen Finerman is long MDY PUTS ; Dan Nathan is short BBRY 12/10 put spread; Dan Nathan is long BA Aug 9 put fly ; Dan Nathan is long TXN Aug 38/36 put spread; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long MSFT; Guy Adami is long AGU; Guy Adami is long NUE; Guy Adami is long BTU; Guy Adami's wife, Linda Snow, works at Merck; Jon Najarian is long AAPL; Jon Najarian is long SBUX ; Jon Najarian is long CSCO; Jon Najarian is long FB; Jon Najarian is long EBAY; Jon Najarian is long QCOM; Jon Najarian is long EMC; Jon Najarian is long VMW; Jon Najarian is long NTAP; Jordan Rohan is long FB.