over 2 years ago • 1 min
Question from Finimizer Muskan in the UK: “Why are higher interest rates bad for stock prices?”
Answer from lead analyst Carl: “Higher interest rates don’t necessarily cause stocks to fall, but they do make it more difficult for stocks to rise. For one thing, higher rates mean new bonds offer investors a higher return than they used to, encouraging investors to sell stocks to buy bonds. For another thing, higher rates theoretically slow down economic growth by making it more expensive to borrow money – and, by extension, spend it. That’s usually bad news for companies’ earnings growth and therefore stock prices. But it’s important to remember that interest rates only tend to rise when the economy is doing well, which should more than offset any negative impact from the higher rates themselves.”
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