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Individual Stocks

Interest Rates

What is the relationship between the interest rate and the stock market?

The relationship between the prevailing interest rate and the stock market is not a simple correlation, but is rather complex when considering all the different types of investments. For example, experts believe that as interest rates increase, bond prices tend to decrease. This generally makes bonds a less attractive investment than stocks, because the previously higher-earning bond is now lower in value. And as interest rates increase, they may lead many in the investing community to believe they should invest in stocks, since many investors may believe they can earn more return if the same dollars are invested in stocks rather than bonds. In this scenario, since more buyers than sellers are now entering the equity market, it may increase stock prices, making the stock market climb.



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