How Do Interest Rates Affect the Stock Market?

The investment community and the financial media tend to obsess over interest rates—the cost someone pays for the use of someone else's money and with good reason. When the Federal Open Market Committee (FOMC) sets the target for the federal funds rate at which banks borrow from and lend to each other, it has a ripple effect across the entire U.S. economy, not to mention the U.S. stock market. And, while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market's response to a change (or news of a potential change) is often more immediate.

Understanding the relationship between interest rates and the stock markets can help investors understand how changes might affect their investments and how to make better financial decisions.

Source : Investopedia