Following the Federal Reserve’s decision to raise the federal funds rate by 25 basis points to 3.75%-4.00% and signal further tightening, U.S. stocks declined. Rate hikes exert dual pressure on equities by elevating risk-free discount rates, which reduces the present value of future cash flows, and by increasing bond yields, drawing capital away from stocks. Additionally, higher borrowing costs squeeze corporate profit margins and suppress consumer spending and business investment. Tech growth, real estate, consumer discretionary, and small-cap stocks exhibit the highest sensitivity to these restrictive monetary conditions due to their reliance on financing and future valuations.
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