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Kensho Stats

A likely Fed rate hike is one week away. Here's how history says it will play out in the markets

Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee February 14, 2017 in Washington, DC.
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Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee February 14, 2017 in Washington, DC.

It's one week before the start of the Fed's two-day meeting where the central bank is expected to hike interest rates, so we looked at what the market did historically before and after a rate increase. A distinct pattern emerged, according to our analysis using Kensho.

We also found certain bank stocks that tend to rally in the week before a Fed hike.

During the week leading up to the Fed decision day where it chose to raise rates, the S&P 500 typically rose, led in part by bank shares, as investors anticipated the move and cheered the growing confidence in the economy that usually accompanies that decision by the central bank.

After the decision, stocks typically fall, led in part by bank names, as traders take profits on the news.

So a Fed hike certainly qualifies as a "buy the rumor, sell the news" event. It will be interesting to see if the same pattern asserts itself from here and if the Fed indeed follows through with the hike as anticipated next week.

For traders looking for individual stocks that historically rose in the lead-up week to a Fed hike, here were the top performers in the S&P financial sector, on average, according to Kensho.

Disclosure: CNBC's parent NBCUniversal is a minority investor in Kensho.