If the Fed sparks an interest rate rebound, history shows these stocks could be big winners

Published Wed, Sep 22 202111:21 AM EDTUpdated Wed, Sep 22 20213:40 PM EDT

As the Federal Reserve prepares to taper its bond-buying program, history shows certain stocks are poised to rally if the central bank sparks an interest rate rebound. The Fed after its September meeting said the tapering of its Covid-era asset purchases — which have increased money supply and stimulated the economy during the pandemic — "may soon be warranted." The central bank sees the bond-buying program likely ending around the middle of 2022, Fed Chair Jerome Powell said in a press conference following the meeting. When the rollback begins, a majority of investors expect the 10-year Treasury yield to move higher, according to a CNBC survey of about 400 chief investment officers, equity strategists, portfolio managers and CNBC contributors. Bond yields have an inverse relationship to prices. When the Fed slows the asset purchases, it's natural that bond prices could fall and yields rise. CNBC Pro looked at the five last major upswings in the U.S. 10-year Treasury yield. These five periods stretched from 2013 to the most recent phase ending in March 2021. During those intervals, we identified the stocks that increased each time with an average gain of at least 30% during these rising-rate periods. From that pool, we filtered for the names well-liked on Wall Street. We found the stocks a majority of analysts say to buy with implied upside of at least 10% based on their average 12-month price target. Take a look at our list. (Source: FactSet. As of Sept. 22, 2021) All but one name on CNBC Pro's screen are outperforming the S & P 500 this year, which has gained 15.9% in 2021 as of Monday's close. Most of the stocks on the list belong to the financial sector. Higher rates mean banks charge greater interest on loans, which typically boosts profits. Charles Schwab stock is typically a big interest rate play. Schwab pays a low rate out to customers holding cash in every account, then uses that cash to purchase higher yielding instruments, like mortgage backed securities, and to make loans funded by those deposits. The company on average gains 45.6% during rising-rate periods. Big banks like Bank of America , Goldman Sachs and JPMorgan also appear on the screen. About 55% of analysts covering those stocks say to buy them. Analysts believe Bank of America and Goldman Sachs can see their shares rise 13.1% from current levels while JPMorgan has implied upside of 10.1%. A couple of cyclical names also appear on the list. Cyclical stock are those typically correlated with the economic cycle. Caesars Entertainment and Deere & Co appear in CNBC Pro's screen with an average gain of 58.1% and 31.6%, respectively, during rising-rate periods. — CNBC's Yun Li and Maggie Fitzgerald contributed to this report.

A pedestrian passes in front of a Charles Schwab Corp. bank branch in downtown Chicago, Illinois.

Christopher Dilts | Bloomberg | Getty Images

As the Federal Reserve prepares to taper its bond-buying program, history shows certain stocks are poised to rally if the central bank sparks an interest rate rebound.