The Federal Reserve, the Bank of England and the Swiss central bank raised interest rates this week. The Swiss rate hike came as a big surprise to most people. As a direct result, stock prices fell. Analyst Nils Quarts at IEX InvestorsPodcast explains that these rate increases will have dire consequences for the target rate.
As interest rates rise, bonds become more interesting. Bonds have little risk compared to stocks. And with higher risk-free interest rates, investors are demanding higher returns on stocks as well. Simply because the higher risk should be rewarded. For this reason, investors are less willing to pay for shares.
Price targets down
“If investors demand a higher return, the price simply goes down,” explains stock analyst Niels Koerts on the latest episode of IEX InvestorsPodcast. According to the analyst, there are significant reductions in target prices. “In the coming weeks, I’ll be making big target price cuts in the money I’m monitoring,” he says. You can listen to the entire podcast below.
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Coin Grooters is the IEX editor. The information in this column is not intended as professional investment advice or as a recommendation to make certain investments. click here For an overview of IEX editors’ investments.
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