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Kensho Stats

These are the best trades if Tepper's right about stocks and rates moving higher together

David Tepper,  founder and president of Appaloosa Management.
Cameron Costa | CNBC
David Tepper, founder and president of Appaloosa Management.

Appaloosa Management's David Tepper told CNBC on Wednesday morning he is short bonds and long stocks, effectively a bet that equity prices and yields can move higher together.

This has not been the norm during the latest bull market, which turns 8 years old Thursday. Lower rates spurred on by the Federal Reserve has been the fuel for this bull.

Here's the S&P 500 (blue) vs the 10-year yield (green) over the last 10 years:

Source: FactSet

But now Tepper believes that rates will move higher as the Fed continues to hike and that stocks will respond positively. Tepper and the many other hedge fund investors making this bet believe significant and synchronized global economic growth, a largely missing phenomenon during the last eight years, will outweigh the negative effects of higher rates on stocks.

Using Kensho, a quantitative tool used by some of these hedge fund players, we looked at the best-performing Dow Jones industrial average stocks during three-month periods (since 1990) when both the Dow and 10-year yield are rising. For the purposes of this screen, we looked at three-month periods when the Dow is up 5 percent and the 10-year yield is up 50 basis points, something that's occurred 20 times in the last 27 years.

Here are the best-performing Dow stocks, on average:

Here are the top-performing market sectors during such periods:

Past performance doesn't guarantee future success, but these things do often repeat themselves in markets. One note, Caterpillar and its latest accounting revelations may now trade more on headlines involving that developing story and less on the macroeconomic picture.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.