Why does higher interest rates cause stock market prices to go down?

Question

I have to answer this question. Explain why higher interest rates cause stock market prices to go down. do you think you can use this analysis to make money in the stock market?

Answer 1

Higher interest rates make savings more attractive and borrowing more expensive. If money flows into savings rather than stocks, the stock market goes down. If consumers and businesses hold back on borrowing activities, including credits, business transactions will go down which impacts company earnings. Therefore, higher rates are not favorable for the stock market. You can short financials and real estates- related stocks.

Answer 2

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Answer 3

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RE Why does higher interest rates cause stock market prices to go down?

I have to answer this question. Explain why higher interest rates cause stock market prices to go down. do you think you can use this analysis to make money in the stock market?

Answer 4

There are two reasons. The most obvious is that businesses need to borrow money, and higher interest rates means a higher cost of borrowing that eats into corporate profits.

But there is a second reason. When you buy a stock you are buying a piece of the company for the purpose of capturing a piece of its future profits. If you pay alot for a compay because it profits are growing rapidly, then you are effectively paying today for profits that will be earned 5, 10 or even 20 years from now.

If med. or long term intestest rates go up, then the market is saying that it expects inflation to be higher in the future. If they are correct, that also means that the future profits of the company will be worth less after adjusting for inflation. So that P/E ratio of 22 listed on Yahoo Finance may really be a P/E ratio of 30 in terms in terms of inflation adjusted long term profits.

Answer 5

very simple, higher interest rates makes you borrow money for higher interest, or your cost of borrowing increases,so your disposable income will reduce to that extent, which could have been possibly invested in the stock markets.
so whenever there is a fedcut or fed rise there is a big impact on the stockmarkets, which you might have observed & mind well its not only individuals but coporates & giant organisations too are all part of the markets.

Answer 6

When interest rates go up it cost businesses more money to borrow money, which decreases their 'bottom line', which decreases their earnings per share, so the perceived value of the stocks drop.

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Answer 7

Bad for business. Businesses have to pay more to borrow money. Anything bad for business makes the stock market go down.

Answer 8

bad for buisnezz