Or companies can borrow more, using the money for expansion or other improvements. Either way, that makes the companies' stocks more attractive, driving prices up. Consumers who find it cheaper to borrow may spend more. That improves corporate sales, leading to bigger profits that can justify higher stock prices. Investors thus see rate cuts as a way of staving off recession and keeping the economic expansion going, and today they bid stock prices up in anticipation.
Lower rates help stocks another way as well - by making bonds less attractive.
Bonds are stocks' chief competitor for investors' dollars. When a bond pays 5 percent instead of 6 percent, it can't compete as well. If money flows from bonds to stocks, demand for stocks goes up and prices rise. A company's prospects can soar if the government approves a new drug or if a murderous lawsuit is thrown out. For some reason, investors are flipping their wigs.