Interest rates represent the cost of borrowing money, set at the short end of the curve by central banks (like the Federal Reserve's Fed Funds Rate) and determined by supply and demand at the long end (the 10-year and 30-year Treasury yields). They are arguably the most powerful external variable in equity market analysis.
Rising interest rates increase the discount rate applied to future corporate earnings, reducing the present value of those earnings and therefore the price investors are willing to pay. This effect is most pronounced for long-duration assets: growth stocks (whose earnings are projected far into the future) and dividend-heavy sectors (utilities, REITs) that compete directly with bond yields for income-seeking capital.
For market timers, interest rate trends are a macro backdrop filter rather than a precise tactical signal. A rising-rate environment is generally unfavourable for equity multiples; a falling-rate environment tends to expand them. The timing of turns in rate cycles has historically marked important inflection points in equity markets, though identifying those turns in real time — rather than in hindsight — remains very difficult.