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It looks like we're getting a December rate hike, and this trade works 100% of the time before one

Key Points
  • Using hedge fund analytics tool Kensho, CNBC found the best sector performers two months before a December rate hike.
  • Financials were up 100 percent of the time and posted an average return greater than 10 percent.
  • Traders now give a greater than 90 percent chance of a rate hike at the Fed's Dec. 12-13 meeting, according to the CME's FedWatch tool.
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This trade works 100% of the time before a rate hike

Buying bank stocks two months before a December rate hike worked every time since 1990, as investors consistently bet on the sector to get a year-end profit boost from the Fed's move, according to a historical analysis.

After the strong wage growth figure in Friday's jobs report, traders now give a greater than 90 percent chance of a rate hike at the Federal Reserve's Dec. 12-13 , according to the CME's FedWatch tool.

Using hedge fund analytics tool Kensho, CNBC found the best sector performers two months before a December rate hike, which are actually pretty rare, occurring just four times since 1990.

Financials were up every time and posted an average return greater than 10 percent. The year-end placement of the hike appears to be a factor as the sector is up only 62 percent of the time two months before all Fed rate hikes, according to Kensho.

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Materials and industrials also do well into these year-end hikes as investors likely believe that by raising rates in December, the central bank is signaling confidence in a strong economy for the year ahead.

To be sure, past performance does not always equal future results. Plus, bank stocks have been on a tear lately so it is possible this move is getting priced in earlier.

The group will also get a test this week with JPMorgan kicking off third-quarter earnings reports for the sector on Thursday.

The Fed has a two-day meeting starting Oct. 31, but traders do not expect a move at that meeting.

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