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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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