How Do Interest Rates Affect Growth Stocks?

Typically, higher interest rates hurt growth stocks because consumers tend to spend less on goods and services, which reduces many growth companies’s cash flow.

Also, investors tend to discount a company’s future cash flows since the Fed raises interest rates during periods of high inflation. High inflation is bad for growth stocks and many investors search for save haven assets such as US treasury bonds, high yield savings accounts, or even commodities such as Gold.

During the 1st half of 2022, Fed chair Jerome Powell raised interest rates and growth stocks crashed in tandum.

The NASDAQ, a US stock market index that holds mostly high growth tech companies, was down 27% YTD due to interest rate hikes.

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