HOW INTEREST RATES AFFECT THE STOCK MARKET

Interest rates and their fluctuations up and down affect a lot of things including the stock market. They can have an impact on the way individual people invest their money and the can influence the ability of companies to do business.

Everything in the business world is connected one way or another. In fact, things that happen Internationally make a difference here in America and as the world becomes more connected, this becomes very clear.

Interest rates can make a big difference in company earnings and their ability to do business. Right now it is also clear that borrowing money has gotten harder and that is hurting everyone as well. When rates go up, companies with excess cash can make more money on the dollar. When interest rates go down, it is cheaper for them to borrow money but it also may be harder to get the loans as is happening now. Companies like Microsoft that have huge amounts of cash are hurt when rates are low and make less interest income.

For the average investor learning how to buy stocks . he (or she) should be aware of what options there are for his investment dollar. When interest rates are higher, lets say around 5%, more people will be content to take that risk free 5% and get a bank CD or Treasury bill. 5% or more is a good rate and many people will be very happy to take that, especially when you can get it without any risk.

However, now interest rates are around 1% and that is a rate that is so low it is almost insulting. 1% is pretty much the same as nothing and this would mean that more people might be willing to take their chances in the stock market where bigger gains can be made. There is more risk involved but to get a higher rate of interest right now, you have to be willing to accept risk.

At times like these when interest rates are very low, there should be a greater number of people looking at the stock market as a investment option. People who invest for the long term need to be making more than 1% and stocks are a good place to do that. When interest rates start rising again, the higher they go should dissuade some investors from taking the uncertainty and risk associated with stocks.

Based on this you might ask whether the stock market tends to go up in times of low interest rates and down when rates are low? While this may be a small factor, nothing is this simple and the market rises and falls because of hundreds of different factors. The stock market is a very intricate machine that is controlled by peoples willingness to invest their money everyday and that can change from minute to minute. Actually, the stock market is a lot like life and that is what makes it so exciting.