Why stocks could rip higher on the heels of the Fed meeting this week

The Federal Reserve is set to meet this week and is widely expected to announce an interest rate hike. Some market strategists are recommending investors prepare not only for a rise in Treasury yields, but higher equities, too.

Investors ought to expect higher rates over the next couple of months, said Larry McDonald, publisher of the Bear Traps Report. He anticipates the 10-year Treasury yield will see a significant move up in the near term on the back of a Fed decision to boost rates, a global pickup in economic growth and a new fiscal 2018 budget.

"You've got a very high probability here in the next two to three months of a major breakout to the upside in yields. We've been stuck in this 2.25 [percent] to 2.40 [percent] range, and we're coming up on that cusp," McDonald said Friday on CNBC's "Trading Nation."

If the 10-year yield breaks above 2.4 percent, then 2.6 percent will quickly follow, McDonald said, "and I think that's going to happen in the next month or so."

At the same time, investors should expect equities to climb higher still, said Phil Streible, senior market strategist at RJO Futures.

"You're probably going to still see equities continue to rip higher. Stronger interest rates here, and interest rate hikes — more aggressive ones — those tend to show that the economy is red-hot," Streible said Friday on "Trading Nation."

One group which could stand to benefit from higher rates would be the banks and the broader financial sector; the category is the second largest in the S&P 500.

Stocks were modestly higher in the U.S. on Monday.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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