An interest rate is the price of money. When the US central bank, the Federal Reserve, raises rates, loans get more expensive, saving pays more, and the whole economy slows a bit. It is its main tool for fighting inflation. But that decision has an especially strong effect on one type of stock: tech and growth companies.
The first reason is how value is calculated. Investors value a company by the profits it is expected to earn in the future and 'discount' them to today: a dollar arriving in ten years is worth less today than a dollar arriving now. The higher the rate, the steeper that discount. For a company like a bank, which earns a lot today, it matters little. For a tech company whose profits are mostly expected in the future, it matters a lot.
The second reason is alternatives. When a US government bond pays 5% a year, almost risk-free, investors ask why take a risk on a stock that may or may not rise. Some money moves from risky stocks to safe bonds, and growth stocks are the first to be sold.
The third reason is financing. Many tech companies, especially in the AI era, need enormous capital: data centers, chips, power. Much of it is financed with debt. High rates make all those projects more expensive and shrink future profit. And startups that are not yet profitable find it harder to raise, because their investors are now getting a good return elsewhere.
What does it mean for the average Israeli investor holding a Nasdaq tracker fund or Israeli company shares? That swings like this are part of the game, not a reason to panic. But it is worth knowing your portfolio is as sensitive to US rates as to news about the companies themselves. On a day inflation data comes out, a tech stock can fall without any bad news about it at all.
