Why Rates Move Everything

The discount-rate channel

Every asset's value is future cash flows discounted to today. The risk-free rate anchors that discount: when rates rise, every future dollar is worth less NOW — long-duration assets (growth stocks, whose value sits in distant profits) fall hardest. This is mechanical, not sentiment: a 1-point rate rise can cut a 30-year cash-flow stream's present value by 15–25%.

The competing-asset channel

Bonds are stocks' direct competitor for capital: a Treasury at 5% is a guaranteed 5%, which raises the bar every stock must clear (day 15's earnings yield). Falling rates lift all boats by lowering the bar; rising rates do the reverse. High-multiple, no-dividend companies are the most exposed; cheap, cash-returning ones the least.

The borrowing channel

Rates price credit itself: corporate borrowing costs, mortgage rates, consumer credit. Rate hikes slow leveraged spending (housing, autos, capex), squeezing cyclical revenue; cuts do the reverse. This is why "the Fed" dominates market narrative — it sets the price of time for the whole economy.

Sources

• How the Economic Machine WorksRay Dalio
• Interest Rate Effect on StocksInvestopedia