NEW YORK (Reuters) – U.S. equity investors can rotate out of high-yielding businesses and into stocks of banks, which would profit from the next leg up in interest rates, after the Federal Reserve’s policy-setting meeting wraps up on Wednesday. If the Fed next week gives a nod on bonds or focuses its trimmed-down bond purchasing to inflation as it winds down its balance sheet, there might be a shift of preferred businesses, investors said. “In the short run financials will benefit,” said Chad Morganlander, portfolio director at Washington Crossing Advisors, if the Fed action pushes long-term rates greater relative to short-term rates. Next week’s meeting is not expected to result in an interest rate increase, but investors will focus on how Fed Chair Janet Yellen characterizes recent inflation readings, for clues to the probability of a hike in December, as well as on how the U.S. central bank will begin to wind down its $4.5 trillion balance sheet. Inflation has been low but Yellen could dismiss this as transitory and point. Any heightened expectations of a rate increase could fuel a rotation and “will certainly change leadership” among market sectors, favoring financials, industrials and materials, according to Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis. “It would put pressure on utilities and telecoms” as well as on companies that consistently increase quarterly paybacks to shareholders, ” he said. Investors sell shares of telecoms and utilities as well as high dividend payers when interest rates rise, since investors can expect similar returns investing in bonds, which can be viewed as safer 44,, partly because they lose their appeal. So far this year, the S&P 500 banking indicator . SPXBK is up less than 4 percent, underperforming the 9.2 percent gain in the S&P 500 dividend aristocrats index . SPDAUDP. S&P 500 utilities . SPLRCU are up 12 percent. While the Fed’s expected announcement of the trimming of its balance sheet has been well telegraphed, investors will look for any Fed reveal on its preference for shorter- or longer-dated bonds when it reinvests a portion of its assets. If the focus is on the repurchase of short-term assets, that would likely push the long end of the yield curve greater, forcing investors’ attention also to shares of banks, which would theoretically make more money with the assistance of higher net interest margins, ” said Morganlander. Banks borrow money short term and lend it out term, so there is a steeper yield curve regarded as positive for their balance sheets. However, long-term yields in the U.S. are not immune to the effect of low-yielding bonds in other developed countries like Germany and Japan. “The general trend based on global rates will continue to stress the yield curve,” Morganlander said. BROAD MARKET TO SHRUG While the Fed’s quantitative easing program was a pillar of the U.S. stock market’s march from then-12-year lows on the S&P 500 in 2009 to present record-high levels, winding it down is not expected to produce a significant market response on the downside. The U.S. central bank is expected to initially cut no more than $10 billion per month out of its $4.5 trillion portfolio, with the cap rising each quarter for a year until it hits $50 billion monthly. The slow and steady move wouldn’t turn the U.S. central bank into a seller. The Fed would allow assets to mature without reinvesting the totality of those maturing assets, which would trim some $ 300 billion from the portfolio following the first year of the Fed according to analysts. “It’s going to be run-off, not outright sales, so that in and of itself is a very slow process,” said Art Hogan, chief market strategist at Wunderlich Securities in New York. “The boldest, the most hawkish case, it is likely to take well into the next decade for the balance sheet to get to its ‘new normal’ size,” Hogan said. “Can the industry stomach that? My supposition would be yes.” Estimates of where the Fed plans to take its balance sheet range from about $2 trillion to $3 trillion. The Fed’s portfolio was close to $900 billion prior to the 2007-2009 financial crisis and ballooned to close $4.5 trillion by late 2014, where it has roughly stayed since. (For a graphic on the Development of the Fed’s balance sheet . the S&P 500 see: reut.rs/2jssUvS) Reporting by Rodrigo Campos, additional reporting by Jonathan Spicer; Editing by Meredith MazzilliOur Standards:The Thomson Reuters Trust Principles.