Will stocks fall when interest rates rise?
As a general rule of thumb, when the Federal Reserve cuts interest rates, it causes the stock market to go up; when the Federal Reserve raises interest rates, it causes the stock market to go down. But there is no guarantee as to how the market will react to any given interest rate change.
How do interest rates affect stock valuation?
The direction of interest rates impacts a company's theoretical value and that of its shares, and therefore the risk premium. When interest rates fall, and all else is constant, the share value will likely rise. When interest rates rise, and all else holds steady, the share value will likely fall.
Why do tech stocks fall when interest rates rise?
Rising interest rates tend to hurt growth stocks, and more specifically tech stocks due to their high price to earnings ratios and low dividend payments. Higher rates can slow down businesses' cash flows and stunt their reinvestment into innovation and growth prospects.
Why might rising interest rates depress stock prices?
Rising interest rates might depress stock prices if investors move their money from stocks to the fixed rate instruments with higher interest rates. This movement reduces the demand for stocks, causing their prices to go down. Consumers usually pay a price for the goods and services they buy.