Indeed, much of the decline in stock prices this year is the result of investors anticipating higher interest rates. Higher rates reduce the present value of future corporate profits, from which stocks ultimately derive their worth. In other words, higher rates mean the profits that businesses are expected to earn in the future are worth less today — and thus stock prices decline.

This helps explain why previously high-flying technology stocks, such as Meta and Amazon, have suffered among the biggest comeuppances in this bear market. Stratospheric tech company stock prices reflected lofty expectations that those firms would make oodles of money way into the future. They still may make lots of money, but higher rates mean those profits earned long into the future are less valuable.

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Stock investors also rightly have high anxiety about the economy's prospects and what that means for corporate profits. Investors seem all but certain of a recession, as the current price declines are on par with the median peak-to-trough decline in stock prices around every recession since World War II. And a growing list of Wall Street investment firms are warning of a looming economic downturn.

Indeed, much of the decline in stock prices this year is the result of investors anticipating higher interest rates. Higher rates reduce the present value of future corporate profits, from which stocks ultimately derive their worth. In other words, higher rates mean the profits that businesses are expected to earn in the future are worth less today — and thus stock prices decline.

This helps explain why previously high-flying technology stocks, such as Meta and Amazon, have suffered among the biggest comeuppances in this bear market. Stratospheric tech company stock prices reflected lofty expectations that those firms would make oodles of money way into the future. They still may make lots of money, but higher rates mean those profits earned long into the future are less valuable.

*

Stock investors also rightly have high anxiety about the economy's prospects and what that means for corporate profits. Investors seem all but certain of a recession, as the current price declines are on par with the median peak-to-trough decline in stock prices around every recession since World War II. And a growing list of Wall Street investment firms are warning of a looming economic downturn.