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- Higher rates make bonds more compelling to investors compared to stocks. Bonds are generally safer and a higher rate generally increases demand for bonds and may hurt demand for stocks.
- When rates go up, prices of existing fixed rate bonds and stock prices both tend to go down. This is especially true of stock prices of companies like utilities that pay significant dividends and are thought to be somewhat similar to bonds in yield and risk.
- Higher rates make borrowing more expensive. Companies that need to borrow significant amounts or are subject to floating rates of interest will pay more to do so. This expense tends to hurt returns on capital, and disproportionately hurt stock prices of more indebted and more leveraged companies.
- Higher rates means more businesses and consumers spend more servicing debt, so the availability of capital to invest goes down. Stock prices go down.
- Higher rates increase the cost of cash. This makes investors more impatient with companies with high cash reserves like Apple. Investors will demand clear, compelling plans to grow or else demand cash be returned via share buybacks and higher dividends. If this doesn't happen, stock prices in cash rich companies will go lower and stay lower than they would if the cash was freed up.