How do interest rate changes by central banks influence stock market performance and investor behavior?

Central banks, like the Federal Reserve or RBI, adjust interest rates to control inflation and stimulate or cool down the economy. When interest rates are lowered, borrowing becomes cheaper, encouraging businesses to invest and expand, and consumers to spend more. This typically boosts company earnings and stock prices. Lower rates also make bonds and savings accounts less attractive, pushing investors toward equities. On the other hand, when rates rise, borrowing becomes more expensive, reducing business profits and consumer spending. Investors may shift to safer assets like bonds, leading to a decline in stock market performance. These rate changes significantly influence investor sentiment, portfolio allocation, and the overall movement of financial markets.