Higher Rates Are Bad News For Stocks, But Especially Tech Stocks

Theodora Lee Joseph

3 months ago1:10 min

Higher Rates Are Bad News For Stocks, But Especially Tech Stocks

It’s that time again: interest rate decision time. . The Federal Reserve (the Fed) is widely expected to announce another hefty rate increase on Wednesday, bringing its key rate to about 4%. You can expect that this will be a painful announcement for stocks: after all, higher rates shrink the present value of a company’s cash flows, which dents its valuation.

But the pain isn’t equal for all stocks. High-growth stocks tend to suffer more in a rising rate environment than low-growth ones. Since these stocks derive most of their present value from future growth and cash flows, higher rates impact their share prices more. The chart above shows just that: at rates of 4% and above, the valuation impact on low-growth stocks (blue bars) and high-growth stocks (yellow bars) start to widen meaning

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