Why rising interest rates are negative (generally) for stocks...Part 2...Theory and mechanics of discount rates

In PART 2 of our discussion on why rising interest rates are generally negative for stocks, we illustrate the mechanics of discount rates. As interest rates rise, the present value of money literally goes down which means the future value of business profits, and therefore businesses themselves, also decline. When stocks decline in response to rising interest rates, in theory, this represents a repricing of assets due to a decline in the present value of future profits.