How do rising interest rates impact stock market valuations?

Rising interest rates generally lead to lower stock market valuations. Higher rates increase the cost of borrowing for businesses, reducing their profits and expansion plans. Investors may shift funds from stocks to safer, interest-bearing assets like bonds that now offer better returns. Moreover, higher rates reduce the present value of future cash flows in stock valuation models, lowering stock prices. Sectors such as technology, which rely heavily on future growth, are particularly affected. However, financial companies may benefit from rising rates due to higher interest income. Overall, sustained rate hikes can dampen investor confidence, slow economic growth, and put downward pressure on stock markets.