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What are interest rates (and why do they move stocks)?

Interest rates are the price of money: when they rise, loans and mortgages cost more and stock valuations tend to fall.

The central bank's rate propagates to everything: mortgages, corporate loans, bond yields. For stocks the mechanism is twofold: high rates slow the economy (lower profits) and make bonds more attractive versus equities (competition on yield).

Growth stocks suffer most: their value depends on profits far in the future, which are worth less when the discount rate rises. That's why the Nasdaq trembles at every Fed meeting.

Concrete example

Between 2022 and 2023 the Fed took rates from zero to above 5%: the Nasdaq lost a third in 2022, US 30-year mortgages topped 7%, savings accounts paid again.

How you see it in InsiderFlow

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Frequently asked questions

Are high rates bad for all stocks?

No: banks and insurers often earn more with high rates; growth and real estate suffer most.

Who sets rates in Europe?

The ECB for the eurozone, with logic similar to the Fed's.

Related terms

What is the Fed (Federal Reserve)?What is inflation?What is a bond?