Why higher rates hurt stocks.

— Why this happens

Every asset is priced against the same question: what else could this dollar be doing?

When the 10-year Treasury yields 2%, a dollar parked in a stock is competing against a pretty lazy alternative. When the 10-year yields 5%, it is competing against a respectable one. Every institutional investor has a model that asks whether the expected return on equities still clears the bond yield plus a premium for taking stock risk. When the bond yield rises, the required return on stocks rises, and the way required return rises without changing any earnings forecast is for the price to fall. The multiple compresses. You did not do anything. The denominator moved.

Long-duration growth stocks get the worst of it. The math is unforgiving. A company whose cash flows mostly arrive in year fifteen is getting those dollars discounted by fifteen years of a higher rate, which is exponential damage. A company paying a dividend today barely feels the move. This is why the Nasdaq cratered in 2022 while energy and staples held up. Same Fed. Different durations.

Nothing about this is a forecast. It is an accounting identity on a whiteboard. Rates move. The discount rate moves. Multiples follow. The only interesting question is whether the cash flows move faster than the discount rate does, and right now they are not.