Investors often forget the basic relationship between bond prices and interest rate changes. Wherever interest rates go, bond prices go in the opposite direction. There is actually some logic to this. Generally speaking, interest rate changes have this impact on all fixed income investments. The impact of interest rate changes on corporate profits might be more logical to most.
Companies typically carry some debt to finance expansion projects or for refinancing purposes.
For those companies who have a fixed rate on their debt, interest rate changes don't mean a whole lot. However, companies with short-term debt and other debt with a floating interest rate will feel interest rate changes immediately. In such instances, a drop in rates reduces a company's cost of servicing existing debt and makes borrowing more money a little more attractive. If a rate decline is expected to persist for some time, it could also have a positive impact on earnings projections. It also follows that a rosier earnings picture often translates into a rising stock price.