How do interest rates affect stock prices?

Interest rates have a significant impact on stock prices because they influence the cost of borrowing and the returns on investments. When interest rates rise, borrowing becomes more expensive, leading to reduced corporate profits and, in turn, lower stock prices. Investors may also shift their investments from stocks to bonds, which offer higher returns in a high-interest-rate environment. On the other hand, when interest rates are low, borrowing is cheaper, which can stimulate economic growth and increase corporate profits, leading to higher stock prices.