During each of the 12 trading days before the Federal Reserve's interest rate decision on Dec. 16, CNBC Pro is highlighting a single strategy that should work if the central bank hikes rates, as many on Wall Street expect. We found these trades using Kensho, a powerful tool used by hedge funds to analyze historical market data.
In the holiday spirit, we will call this series the "Twelve Days of Fedmas." Friday marked the fifth day so we've added another line, "Five Goldman Sachs"
On the fifth day of Fedmas,
Janet Yellen sent to me:
FIV-V-V-E GOLD-D-D-D M-A-N Sachs
Four Lincoln Nationals
Two General Motors
And a pair trade in Curr-en-cies!
What a day it was Friday as a stronger-than-expected jobs report raised the odds that the Fed will hike seven trading days from now. If the central bank's rate rise sparks a move higher in long-term interest rates, that should benefit investment banks as their profitability should improve as a result of the increase. A big way these firms make money is harvesting the difference between the short-term rates at which they borrow and the long-term rates at which they lend.
CNBC Pro ran the numbers on Kensho and found that certain bank shares do perform well under a scenario of rising long-term interest rates for U.S. markets. We looked at all the one-month periods of significant moves higher in rates over the last decade. Here are the stocks from that sector that did the best.