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Why Falling Interest Rates are Great News for Investors in 2024

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Manage episode 397011311 series 2714551
Contenuto fornito da 7investing. Tutti i contenuti dei podcast, inclusi episodi, grafica e descrizioni dei podcast, vengono caricati e forniti direttamente da 7investing o dal partner della piattaforma podcast. Se ritieni che qualcuno stia utilizzando la tua opera protetta da copyright senza la tua autorizzazione, puoi seguire la procedura descritta qui https://it.player.fm/legal.

The Fed's rampant rate increases have wreaked havoc on stocks in recent years. Yet we're perhaps finally seeing a light emerge at the end of the tunnel.

Projections released by the Fed suggest that America's central bank will reduce its Fed Funds target rate multiple times during 2024. The Fed ultimately wants to reach a median target rate of 4.6% by the end of this year.

Falling interest rates are generally good for business. It allows them to raise capital and more attractive rates and to begin reinvesting in growth projects once again.

For investors in those businesses, falling interest rates translate into lower discount rates. This is the metric that institutional investors on Wall Street use to discount a company's future profits to the present in their discounted cash flow models. When a discount rate falls (which typically happens when the Fed reduces the Fed Funds rate), future cash flows get discounted at a lower rate. And you ultimately end up with a greater present valuation and a higher stock price.

To subscribe for free to our 7investing podcast and have our episodes directly delivered to your Inbox, please join our free email list.

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463 episodi

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iconCondividi
 
Manage episode 397011311 series 2714551
Contenuto fornito da 7investing. Tutti i contenuti dei podcast, inclusi episodi, grafica e descrizioni dei podcast, vengono caricati e forniti direttamente da 7investing o dal partner della piattaforma podcast. Se ritieni che qualcuno stia utilizzando la tua opera protetta da copyright senza la tua autorizzazione, puoi seguire la procedura descritta qui https://it.player.fm/legal.

The Fed's rampant rate increases have wreaked havoc on stocks in recent years. Yet we're perhaps finally seeing a light emerge at the end of the tunnel.

Projections released by the Fed suggest that America's central bank will reduce its Fed Funds target rate multiple times during 2024. The Fed ultimately wants to reach a median target rate of 4.6% by the end of this year.

Falling interest rates are generally good for business. It allows them to raise capital and more attractive rates and to begin reinvesting in growth projects once again.

For investors in those businesses, falling interest rates translate into lower discount rates. This is the metric that institutional investors on Wall Street use to discount a company's future profits to the present in their discounted cash flow models. When a discount rate falls (which typically happens when the Fed reduces the Fed Funds rate), future cash flows get discounted at a lower rate. And you ultimately end up with a greater present valuation and a higher stock price.

To subscribe for free to our 7investing podcast and have our episodes directly delivered to your Inbox, please join our free email list.

  continue reading

463 episodi

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