How do interest rate hikes influence stock prices?

Interest rate hikes generally lead to lower stock prices, particularly for growth and tech stocks. When central banks raise rates, borrowing costs increase for businesses and consumers. This can reduce corporate profits, slow economic growth, and lower consumer spending. Additionally, higher rates make bonds and savings more attractive, pulling investment away from equities. Investors also discount future earnings more heavily, which especially impacts companies with long-term growth expectations. However, the impact varies by sector. Financial companies might benefit from higher rates due to increased lending margins. Defensive sectors like utilities or consumer staples may hold up better. Ultimately, the stock market’s response to rate hikes depends on the broader economic outlook and how well the rate increases are communicated and anticipated by investors.