Markets

A Straightforward Guide to What Stocks Do When Interest Rates Rise

The Federal Reserve raised interests rates today. It was the first time in almost a decade.

What's this mean for stocks? Well, let's think it through.

Higher interest rates makes bonds more attractive. That's bad for stocks.

But the Fed is raising rates because the economy is strong. That's good for stocks.

Higher rates could mean higher inflation is anticipated. That's bad for stocks.

But higher inflation could increase revenue growth. That's good for stocks.

Higher rates could curtail lending. That's bad for stocks.

But less lending reduces the odds of a credit crisis. That's good for stocks.

Higher rates could hurt leveraged companies. That's bad for stocks.

But higher rates increase the interest income for companies with lots of cash. That's good for stocks.

Higher interest rates mean the Fed is taking away the punchbowl. That's bad for stocks.

But higher rates mean the Fed has room to cut interest rates when it needs to. That's good for stocks.

So, who knows.

Maybe we should all ignore the news, focus on what's in our control, and look forward to Christmas.

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The article A Straightforward Guide to What Stocks Do When Interest Rates Rise originally appeared on Fool.com.

Contact Morgan Housel at mhousel@fool.com. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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