Buying pressure pushes prices upward, which leads to inflation. To counter this, the Fed tightens the money suppy by raising interest rates, as it did last Tuesday. 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.