The Federal Reserves goals and actions have ramifications on the securities market. The prices of fixed income securities adjust as to yield in accordance with current interest rates. Thus, if interest rates move down, the yield on fixed income securities will also move down. Mind you, the prevailing level of interest rates is only one of many factors that determine the prices of some fixed income securities. Equity markets also keep a close watch on interest rates.
Equities returns essentially compete with the returns with other securities.
In a period of rising interest rates, fixed income securities. that now pay a higher rate look more attractive than stocks. Theoretically, investors will switch from equities to fixed income such as bonds or money market instruments to earn a higher rate of return. Moreover, a rise in interest rates will also cause a decline in corporate investment. Since undertaking investment projects is more expensive, firms will be less apt to invest in the expansion of new facilities or the purchase on new capital assets.