Market Insider

Here's what happens to stocks right before the Fed raises rates

Fed on track for 3 rate hikes this year: Jeff Saut
VIDEO3:1003:10
Fed on track for 3 rate hikes this year: Jeff Saut

The odds the Federal Reserve will announce a rate hike at next week's FOMC meeting have jumped again.

According to the CME Group's FedWatch tool, the probability of a rate increase was over 90 percent on Thursday – with the expectation the benchmark fed funds rate will rise by 25 basis points to the range of 0.75 percent and 1 percent.

Since 1994, there have been 33 fed funds rate hikes. Using hedge fund analytics tool Kensho, CNBC conducted a study to see which areas of the market perform the best the week before a Fed decision during a rate hike cycle.

The markets tended to be higher across the board going into a Fed hike, according to Kensho. The and had the highest average returns, at 0.8 percent and 0.7 percent respectively. The Nasdaq logged the highest consistency rate, trading positively 70 percent of the time.

Health care and the financials were the top performing sectors, each gaining over 1 percent in the week before a rate hike. Energy traded consistently higher, positive 70 percent of the time.

Digging deeper into individual names, the top performing Dow components were , and United Health, up an average of 2.9 percent, 2 percent and 2 percent respectively. The mega-banks traded higher at least 80 percent of the time, while UNH was positive 70 percent of the time.

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