31 WHY INTEREST RATES AFFECT THE STOCK MARKET

In this chapter we will examine why changes in the level of interest rates are an important influence on equity prices and apply technical analysis to credit market yields and prices.

Changes in interest rates affect the stock market for four basic reasons. First, fluctuations in the price charged for credit has a major influence on the level of economic activity and, therefore, indirectly on corporate profits.

Second, because interest charges affect the bottom line, changes in the level of rates have a direct influence on corporate profits and, therefore, the price investors are willing to pay for equities.

Third, movements in interest rates alter the relationships between competing financial assets, ...

Get Technical Analysis Explained, Fifth Edition: The Successful Investor's Guide to Spotting Investment Trends and Turning Points, 5th Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.