How do interest rate hikes affect the stock market?

Interest rate hikes typically have a negative short-term impact on the stock market. When central banks raise rates, borrowing costs increase for both consumers and businesses, which can slow economic growth and reduce corporate profits. Higher rates also make bonds and savings accounts more attractive compared to stocks, often leading investors to reallocate funds. Growth stocks, particularly in sectors like tech, tend to be more sensitive to rate hikes due to their reliance on future earnings. However, not all stocks are equally affected; defensive sectors like utilities or consumer staples may hold up better. Over time, if rate hikes control inflation and stabilize the economy, market confidence may return, potentially supporting long-term growth.