Higher interest rates naturally increases the attractiveness of fixed-rate investments, while lowering the draw to stocks, as companies may be facing a slowing economy and, as a result, lower earnings. It's more complicated than this, though. Even if American companies continue to increase earnings above expectations, nervous money might still shy away from stocks as long as we're in an environment of rising interest rates. Uncertainty abounds in a cycle of rising rates. It's by no means a given that last week's rate increase will lead to further increases, but many are projecting as such.
History suggests the possibility as well.
Tuesday we saw a quarter-point increase. Friday, employment data is released. This yardstick will probably be tightly watched over the coming months, as it was last year, too. Three years ago the Fed rattled the market by raising the Fed fund rate seven times, from 3 percent to 6 percent, over a 12-month period. Stocks were flat to down during the entire time.