How interest Rates Affect Stock Prices by Mark C. Snead
ARTICLE SYNOPSIS ...How lnterest Rates Affect Stock Prices
by Mark C. Snead
The basic theoretical relationship between changes in long-term interest rates and stock prices is
inverse. Falling interest rates signal rising stock prices, while inversely, rising interest rates signal falling
stock prices. Changes in interest rates affect stock prices inversely for two distinct reasons.
First, as interest rates fall, corporate borrowing costs (to fund expansions, acquisitions, inventories and so
forth) decrease, and the outlook improves for future corporate profits. Investors view stock ownership
favorably when corp...