These are the best 5 Dow stocks to own when rates spike

Published Tue, Sep 28 202112:34 PM EDT

A handful of Dow stocks have a history of performing well when interest rates are rising, like they are now. Treasury yields continued to spike on Tuesday, pressuring growth pockets of the stock market. The 10-year Treasury yield climbed as high as 1.558% as investors readied for the Federal Reserve's tapering of its unprecedented stimulus from the pandemic. Bond yields have climbed at a fast clip. The 10-year rate hovered as low as 1.29% at one point last week and was around 1.13% as recently as August. The 30-year Treasury yield topped 2% on Tuesday. To find which stocks might thrive in this environment, CNBC Pro screened through the Dow Jones Industrial Average stocks that increased in value during each of the last 5 multi-month sizable moves higher in the 10-year yield going back to 2013. Then, we found the top performers. Take a look at CNBC Pro's list here. CNBC Pro's list contains two financial names: Goldman Sachs and JPMorgan . Goldman returns an average of 32% and JPMorgan gains more than 31% when interest rates spike. Banks benefit from higher interest rates as their net interest margin — that is, the difference between what they pay on deposits and earn on loans — increases. Higher rates also allow financial companies to charge more for services and make more on their various holdings. Further, increased bond market activity helps the trading side for those with that business. Investors often flock to more cyclical sectors, like industrials, when interest rates rise. Cyclical stocks are closely tied to economic health and an improving economy is often behind the rate increase. Caterpillar is a cyclical stock that shows up on CNBC's list. The company returns as average of roughly 23% when interest rates rise. Media and theme park giant Disney returns an average of about 21% during periods of rising interest rates. Just this week, Disney's stock is outperforming the Dow. Lastly, Apple is the fifth best performing Dow stock was bond yields climb. The technology giant returns an average of 20.5% Apple is coming off its "California Streaming" launch event that happened earlier this month. Apple announced new iPads, iPhones and Apple Watch models. It did not, contrary to some predictions, release new AirPods headphones. To be sure, tech stocks tend to get hit in rising rate environment because higher rates erode their future earnings. But Apple could be more resistant to those forces because of its strong cash flows today.

Michael Nagle | Bloomberg | Getty Images

A handful of Dow stocks have a history of performing well when interest rates are rising, like they are now.