The Impact of Inflation and Interest Rate Hikes on Global Financial Markets

Equity Markets
Higher interest rates generally mean that capital becomes more expensive for businesses, leading to a pullback in growth investments, particularly in tech and other high-growth sectors. Investors are now shifting focus toward defensive stocks in sectors like healthcare and consumer staples, which tend to perform more consistently under tighter financial conditions. This shift reflects a growing investor preference for assets with more predictable returns, as they hedge against market volatility and potential downturns.

Bond Markets
Bond markets have been directly affected by rising interest rates, which inversely impact bond prices. When interest rates rise, the fixed returns from older bonds become less attractive compared to newer bonds issued at higher rates. This decline in bond prices has impacted bond portfolios, especially for those holding long-term bonds. However, the increased yields on new bonds have drawn interest from investors seeking fixed-income returns, shifting capital towards short-term, high-yield bonds.

Real Estate and Housing Market
With mortgage rates climbing alongside interest rates, housing markets have also begun to cool. Prospective buyers are facing higher borrowing costs, which has led to reduced housing demand and slower price growth in several regions. In the United States, where mortgage rates have more than doubled over the past two years, both first-time homebuyers and investors are taking a more cautious approach, which is having a cooling effect on real estate markets.