How Do Interest Rates Affect the Stock Market?

As an individual borrower, the rate of interest plays a significant role in determining the tenure and loan amount you wish to borrow. This is because the interest rate is a kind of fee that you pay on borrowed money, which is expressed as a percentage of the total loan amount. Typically, we base our spending on the interest obligation we would have to bear.

Similarly, there is a crucial relationship between the stock market and interest rates. Understanding this can help you to know how interest rate changes can affect your life and thus help you to make smart investment decisions.

In the short run, the sudden rise of interest rate can impact organisations that have high debt in their balance sheets. As the interest rate rises, it further reduces the companies Earnings Per Share (EPS). This can cause a negative sentiment on such stock that can influence a …