How do interest rate hikes affect the stock market?

Interest rate hikes can negatively affect the stock market. When central banks increase interest rates, borrowing costs rise for both consumers and businesses. This can reduce consumer spending and corporate investments, potentially leading to lower earnings and stock price declines. Higher rates also make bonds more attractive compared to stocks, prompting investors to shift their assets. In sectors like real estate, higher interest rates can reduce demand for housing, further dragging down related stocks. However, the impact varies based on the magnitude of the rate hike and the broader economic environment. Sometimes, investors may view rate hikes as a sign of a healthy economy, tempering negative effects.