Explaining the Relationship Between Stock Prices and Interest Rates

For many investors, the fact that stock prices and interest rates are inversely correlated is a mystery. We've seen this over the last 13 months, as the S&P 500 soared in response to the Federal Reserve's third round of quantitative easing.

But once you consider the impact that lower interest rates have on both business expenses and consumer spending, it all becomes clear.

Retail companies are at the forefront of this. As I discuss in the video below, when interest rates go down, companies like Wal-Mart , Target , and Costco benefit from a corresponding rise in disposable income. All else being equal, when their customers get richer, so do they.

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The article Explaining the Relationship Between Stock Prices and Interest Rates originally appeared on Fool.com.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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