"What is the effect of Fed's raising interest rate on the stock market and on your life? Discuss."
An increase in interest rates will have a negative impact on the stock market. With larger rates the market will see a shift from equity to debt securities. Investors will look for a more appealing return when investing in bonds.
The higher interest rates will make borrowing money more expensive. The added cost of money will make corporations more selective when initiating projects. Corporations will have less future cash flows which will ultimately lower stock prices.
The added cost of money will be realized by everyone attempting to borrow money. The higher interest rates will make for additional costs. Purchasers will be less willing to buy a new home or car. The waning housing and auto markets will have a pull back on the stock market. People will earn less salary's which will create less spending. The less spending will cause stock prices to fall.
Higher interest rates will cause the goods I purchase to be more expensive. In addition, it will cause me to reassess my current investments and look for opportunities to diversify my portfolio as other securities become more attractive. Finally, higher interest rates will persuade more people to rent than to but a new home in my community. I currently own two rental properties and higher interest rates could help keep the properties filled with tenants in the future.