Buying bank stocks two months before a December rate hikeworked every time since 1990, as investors consistently bet on the industry to get a year-end profit boost from the Federal Reserve’s move, history shows.
After the strong wage growth figure in Friday’s jobs report, traders now give an increase at the Fed’s meeting ending Dec. 13 a greater than 90 percent chance, 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.
Materials and industrials stocks also do well into these year-end hikes as investors likely believe the central bank is signaling confidence in a strong economy for the year ahead by hiking.
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 as JPMorgan kicks off third-quarter earnings reports for the industr 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.