Finance

Tech start-ups raised a record $621 billion in venture capital funding globally in 2021, according to CB Insights.
Some VC investors worry the boom times may not last much longer as tech stocks fall amid talk of higher interest rates.
VCs say they’re already hearing about deals being renegotiated at lower valuations and even withdrawal of term sheets.

A conceptual image showing stock exchange numbers and flames.
Sean Gladwell | Moment | Getty Images

After a blockbuster year for venture capital deals, some investors worry the boom times may not last much longer. 
Tech start-ups raised a record $621 billion in venture funding globally in 2021, according to CB Insights, up more than double from a year earlier. The number of privately-held “unicorn” firms valued at $1 billion or more rose 69% to 959.

Private companies such as Stripe and Klarna saw their valuations swell to the tens of billions of dollars, aided by a flood of cash as a result of ultra-loose monetary policy and the acceleration of digital adoption during the Covid-19 pandemic.
Now, with the Federal Reserve hinting at plans to hike interest rates in a bid to cool rising prices, investors in high-growth tech firms are getting cold feet. The Nasdaq Composite has fallen over 15% so far this year as fears of tighter policy has led to a rotation out of growth stocks into sectors that would benefit from higher rates, like financials.
In the private markets, panic over the tech sell-off is starting to set in. VC investors say they’re already hearing about deals being renegotiated at lower valuations and even the withdrawal of term sheets. Later-stage companies are likely to be the hardest hit, they say, while some firms’ plans to go public could get put on hold for the foreseeable future.

“It’s definitely trickling through to the private markets and the later-stage rounds,” said Ophelia Brown, founder of Blossom Capital. “Term sheets are being renegotiated. Some term sheets have been pulled.”
The shift in tone echoes negative sentiment on start-up investing around the start of the Covid pandemic. In March 2020, Sequoia warned founders of “turbulence” in a blog post reminiscent of its 2008 presentation “R.I.P. Good Times.” For a brief period, the Silicon Valley firm was right: a number of start-ups saw their valuations slashed initially, while others had term sheets pulled.

But what followed was a banner year for start-up investment, with companies raising $294 billion in 2020 globally. Hedge fund giant Tiger Global became a significant driving force in the market, backing tech firms at much earlier stages than before as traditional investors sought out returns via alternative assets.
Brown thinks some of the reaction in both public and privately-traded tech stocks has been overdone, however, and that most start-ups should be able to weather a changing economic cycle given the mountain of cash available in private markets.
“There is still so much dry powder for new funding rounds,” she said. “Most companies have been very well funded that, unless they were being completely reckless with the cash, they should be able to see this through.”

Down rounds

A handful of firms have managed to raise impressive financing rounds in the first few weeks of the new year. Checkout.com, a U.K.-based payments company Brown has invested in, bagged a $1 billion deal at a monster $40 billion valuation, while Estonian ride-hailing firm Bolt secured an $8.4 billion valuation in a $711 million fundraise.
But some VCs are concerned we may be about to see a wave of “down rounds,” where start-ups raise funds at a valuation lower than in earlier rounds. They say companies at the later stages of fundraising are likely to be the hardest hit.
“There will be more downward pressure on pricing in later stage rounds,” said Saar Gur, general partner at venture capital firm CRV.
“We will see more valuation compression and it will be harder to get many later stage rounds done,” Gur added. “And we won’t see companies have such rapid mark-ups without much more business progress.”
Gur, an early investor in DoorDash, said many private start-ups have achieved multibillion-dollar valuations based on comparisons to multiples in the stock market. Now that several high-flying tech companies have seen their share prices fall, competitors in the private markets could be forced to follow suit, he says.

Still, it’s not all doom and gloom, according to Gur: “I still think the system is full of capital and great companies will raise.”

Dotcom bust?

Hussein Kanji, partner at Hoxton Ventures, thinks private tech companies are likely to pause any plans for initial public offerings as liquidity conditions begin to tighten.
“I think the IPO window will be closed,” said Kanji. “All the funds with companies thinking they would go out in 2022 will probably be stalled.”
Still, there’s plenty of money in SPACs, or special-purpose acquisition companies, sitting on the sidelines, Kanji said. SPACs are listed shell companies that take other firms public through merger deals. In 2021, these companies raised a record $145 billion, almost doubling the previous year’s amount.
Some investors fear tighter policy could cause a plunge in stock markets on par with the bursting of the dot-com bubble in the early 2000s. Though it’s worth noting there have long been concerns that U.S. stocks are in a bubble.
“I’m curious to see if this is like [a] dot-com correction and becomes protracted, or [just] a blip,” said Kanji.
Whatever happens in the public markets, early-stage firms are unlikely to be impacted, according to Brown, who previously worked at Index Ventures and LocalGlobe.
“It will take some time” for the fallout from the rout in tech shares to hit early-stage start-ups, she said, adding that companies raising at earlier stages have “always been somewhat protected from the public markets.”
Mergers and acquisitions could provide an alternative route for companies which had sat on plans to go public, according to Brown.

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China’s forthcoming rules on overseas IPOs will apply to Chinese companies that want to list in Hong Kong, the China Securities Regulatory Commission told CNBC on Friday.
In an exclusive interview with CNBC, the commission’s director-general of the international affairs department, Shen Bing, spoke about what draft rules will mean for Chinese companies that are planning to list in the U.S. and other markets.
When asked whether the new rules would eliminate the possibility of any IPO being suspended two days before an expected listing, Shen said: “One of the purposes of these rules is to avoid such a situation, [with] more communication and more clear rules.”

People wear protective masks as they stand outside of the China Securities Regulatory Commission (CSRC) in the Financial Street on April 17, 2020 in Beijing,
Emmanuel Wong | Getty Images News | Getty Images

BEIJING — China’s forthcoming rules on overseas IPOs will apply to Chinese companies that want to list in Hong Kong, the China Securities Regulatory Commission told CNBC on Friday.
In an exclusive interview with CNBC, the commission’s director-general of the international affairs department, Shen Bing, spoke about what draft rules will mean for Chinese companies that are planning to list in the U.S. and other markets following last summer’s crackdown.

“By overseas, we mean, of course, you know, anywhere besides mainland China,” Shen said in a wide-ranging interview. “Of course it includes Hong Kong.”
Shen said the rules would apply not only to Chinese companies wanting to offer H-shares in Hong Kong, but also a category called “red chips,” which previously did not need the CSRC’s approval. H shares refers to stocks issued by mainland China companies that trade in Hong Kong, and red chips are Hong Kong-trade shares of companies that conduct most of their business in the mainland but are incorporated outside mainland China.
Since July 2021, a rush of Chinese IPOs to the U.S. has dried up. In the last several months, Beijing has overhauled the process for letting domestic companies raise money outside its borders through stock offerings.
One reason cited for the changes is national security, which Washington has also cited when it blacklisted some Chinese companies and moved to reduce U.S. investor exposure to stocks allegedly tied to the Chinese military in the last few years.
From Feb. 15, the increasingly powerful Cyberspace Administration of China will officially require data security reviews for certain companies before they are allowed to list abroad.

The CSRC and the State Council — the top executive body in China — have released more comprehensive draft rules, and the public comment period ended on Sunday. As proposed, the rules will require Chinese companies to file with the CSRC before listing overseas, and the commission said it would respond within 20 working days of receiving all materials.
The draft rules state that overseas listings are prohibited in some of the following situations:

when other government departments consider the offering a threat to national security;
if there are disputes over the ownership of the company’s major assets; or
if there’s criminal offense by a controlling shareholder or executive within the last three years.

However, Shen said the rules would “not necessarily” prevent a Chinese company from listing overseas if it operated in an industry subject to restrictions or bans on foreign investment within mainland China.
The CSRC’s priority in 2022 is opening China’s market further to foreigners, Shen said. “Overseas listing is one part of the opening up regime, so I think [that] in itself would also be our priority.”

Slowdown in overseas IPOs

In April 2021, about 60 Chinese companies were looking to go public in the U.S. That rush of New York listings essentially halted in the summer.
Just days after Chinese ride-hailing app Didi’s roughly $4 billion U.S. IPO in late June, China’s cybersecurity regulator ordered the company to suspend new user registrations and remove its app from app stores.
The regulator had said one reason for the cybersecurity probe was to maintain national security. It is unclear when Didi can resume adding new customers.

We noticed the slowdown of overseas listing since the second half of last year, and we hope that with these new rules, things will resume.

international department director, CSRC

The company announced in December it plans to delist from the New York Stock Exchange and pursue a listing in Hong Kong, but did not disclose a timeframe.
“We noticed the slowdown of overseas listing since the second half of last year, and we hope that with these new rules, things will resume,” Shen said, declining to comment on specific companies. “We hope the companies would make full use of these new rules, and to resume their listing in any overseas market.”
Shen said he recognized a strength of the U.S. market is “strong inclusiveness for new start-ups in new industries,” even as markets in Greater China have been catching up.

More communication, clearer rules

Another event that rocked foreign investors’ confidence in Chinese stocks and markets was the sudden suspension of Alibaba-affiliated Ant Group’s IPO. The news came less than two days before what would have been a record-setting listing in Shanghai and Hong Kong.
When asked whether the new rules would eliminate the possibility of any IPO being suspended two days before an expected listing, Shen said: “One of the purposes of these rules is to avoid such a situation, [with] more communication and more clear rules.”

Shen confirmed again that Chinese IPOs overseas could use the variable interest entity (VIE) structure. “If they comply with relevant rules and regulations, they can still file with CSRC,” he said. “We will use the inter-departmental regime to verify the compliance issues before giving their filing a response.”
A VIE creates a listing through a shell company, often based in the Cayman Islands, which prevents investors in the U.S.-listed stock from having majority voting rights over the Chinese company.
Many Chinese companies have used the structure to list in the U.S.
Overall, Shen emphasized how the commission would like to keep the filing process “as efficient as possible” and said the commission is working with relevant departments to include more detailed guidance on how companies should communicate with regulators in order to list overseas.

Read more about China from CNBC Pro

“In this course, we may provide regulatory advice to [the] firms so that they do not waste time to do something that eventually would not be possible,” Shen said. He noted the CSRC’s 20-day response time would be separate from other departments’ review period.
Shen did not say when exactly the final rules would come out or be implemented.
“Relevant authorities have reached quite [a] high degree of consensus over the rules, so we would expect the procedural process for approval would be quite efficient,” he said, and added that he hoped for “early publication” of the final rules.

Investment banks’ concern

Some analysts have raised concerns about how the proposed rules might increase compliance issues for foreign banks that want to work with Chinese IPOs.
But Shen cast the rules as having a “very slight touch” approach in which investment banks need to alert the CSRC when they enter the business of underwriting Chinese IPOs, and annually disclose how many of those overseas listing projects they completed.

“We need to consolidate information [on overseas listings] from different sources,” he said. “From this report of the financial institution, we’ll know that there’s no kind of escape from the regulation.”
Before national security concerns came to the forefront in the U.S. and China, some Chinese companies like Luckin Coffee were forced to delist from overseas markets due to fraud.
In 2018, the American documentary “The China Hustle” estimated that more than a decade ago, pension funds and retirement funds lost at least $14 billion to Chinese stocks that turned out to be frauds. The film called for more regulation based on increased connections between Chinese financial markets with the global system.

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Robinhood anticipates first-quarter revenue of less than $340 million, down 35% compared with 2021. Wall Street expected $448.2 million in revenue for Q1, according to FactSet.
Monthly active users fell to 17.3 million last quarter from 18.9 million in the third quarter.
Robinhood is about to face its toughest comps in the first and second quarters of 2022 following its record year in 2021 from events like the GameStop short squeeze.

Stock-trading app Robinhood gave a bleak revenue forecast for the first quarter of 2022 on Thursday as its latest earnings report showed a decline in active users.
Shares of Robinhood tanked 15% in after hours trading.

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The newly public brokerage anticipates first-quarter revenue of less than $340 million, down 35% compared with 2021. Wall Street’s consensus estimate was for $448.2 million in revenue for Q1, according to FactSet.
Monthly active users fell to 17.3 million last quarter from 18.9 million in the third quarter. This number was also below estimates of 19.8 million, according to FactSet.
Meanwhile, net cumulative funded accounts totaled 22.7 million at the end of the fourth quarter, about in-line with estimates. This is up from 22.4 million accounts in the third quarter. To be sure, Robinhood added 10 million accounts alone in 2021.

Vlad Tenev, co-founder and CEO of Robinhood rings the opening bell at the Nasdaq on July 29th, 2021.
Source: The Nasdaq

For the fourth quarter, Robinhood reported a net loss of $423 million, or a 49 cent loss per diluted share, wider than the 45 cent loss estimate collected by Refinitiv. However, Robinhood posted $363 million in revenue in the final three months of 2021, slightly above analysts expectations of $362.1 million.
Robinhood is about to face its toughest comps in the first and second quarters of 2022 following its record year in 2021 from events like the GameStop short squeeze.

Robinhood’s stock is more than 86% off its most recent high since the trading app’s July 2021 public debut. Shares are down more than 34% in January, bringing its market capitalization to less than $10 billion.

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Fourth-quarter transaction-based revenue was $264 million. Options trading made up $163 million, cryptocurrency trading added $48 million and equities contributed $52 million to transaction based revenue in Q4.
Revenue from crypto has been declining since the second quarter of 2021. After a banner $233 million in the second quarter of 2021, crypto-based revenue was only $51 million in the third quarter. And Thursday’s report shows its continuing to decline.
However, Robinhood is still investing heavily in its crypto business.

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“Robinhood has set aggressive goals to start opening its crypto platform up to customers internationally in 2022. The company believes in the immense potential of the crypto economy and sees a big opportunity in serving customers across the globe,” the company said in a release.
Robinhood’s assets under custody rose to $98 billion on an annualized basis. Average revenue per user decreased by 39% to $64 year over year from $106.
Looking ahead to 2022, Robinhood said it will build products intended to support long-term investing, as well as products in spending and savings. Some of these products will include instant debit card deposits and withdrawals.

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Stock futures rose in overnight trading Thursday, boosted by a jump in Apple shares, as Wall Street looks to wrap up a roller-coaster week on a high note.
Futures on the Dow Jones Industrial Average gained about 100 points. S&P 500 futures climbed 0.3% and Nasdaq 100 futures jumped 0.7%.

Shares of Apple popped nearly 5% in after-hours trading after the company reported its largest single quarter in terms of revenue ever. Its sales grew more than 11% even amid supply challenges and the lingering effects of the pandemic. Apple beat analyst estimates for sales in every product category except iPads.
Major averages have experienced outsized intraday swings each day this week as investors continued to digest the Federal Reserve’s pivot to tighter policy. The market’s fear gauge Cboe Volatility Index shot up to its highest level since October 2020 earlier this week and has traded above the 30 threshold.

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The Dow just came off its ninth negative session in 10, falling 0.3% on the week and could head for its fourth negative week in a row. The S&P 500 is down 1.62% week to date, while the tech-heavy Nasdaq Composite has dropped 1.4%, on track for its straight fifth negative week.
The S&P 500 and the Nasdaq are both now in correction territory, sitting 10.2% and 17.6% below their respective record highs.
The Fed indicated Wednesday that it could soon raise interest rates for the first time in more than three years as part of a broader tightening of historically easy monetary policy.

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“The FOMC meeting did not bring any surprises in terms of monetary policy, however, it may be perceived as more hawkish than expectations owing to Chair Powell’s suggestion of a need to enter a ‘steady’ phase of policy normalization,” Chris Hussey, a managing director at Goldman Sachs, said in a note.
The fourth-quarter earnings season has been solid so far. Of the 145 companies in the S&P 500 that have reported to date, 79.3% topped analyst expectations, according to Refinitiv.
Chevron is set to report numbers before the bell on Friday.
“For now, I am determined to not fight the Fed. I’m bracing for heightened market volatility and significantly more modest market returns,” said Brian Levitt, Invesco’s global market strategist.

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“We’re also close to delivering a feature that our customers have been asking for: an ever larger window of available trading hours. We call this feature ‘hyper-extended hours’,” said Robinhood CEO Vlad Tenev.
Depending on how much extended trading it will offer, this is the kind of change that likely needs the approval of the Securities and Exchange Commission, but the company did not say whether it has petitioned the regulatory body.

Photo Illustration by Pavlo Gonchar
SOPA Images | LightRocket | Getty Images

Robinhood is planning to roll out a feature to let its millions of clients trade stocks well outside of normal market hours.
“We’re also close to delivering a feature that our customers have been asking for: an ever larger window of available trading hours. We call this feature ‘hyper-extended hours’ and anticipate rolling it out later this quarter,” Robinhood CEO Vlad Tenev said on the company’s earnings call on Thursday.

Depending on how much extended trading it will offer, this is the kind of change that likely needs the approval of the Securities and Exchange Commission, but the company did not say whether it has petitioned the regulatory body. The U.S. stock market opens at 9:30 a.m. ET and closes at 4:00 p.m. as part of its regular session. Extended trading is allowed as early as 4 a.m. and goes as late as 8 p.m. and some electronic brokers do offer that extended access.
Currently, Robinhood offers trading 30 minutes before the open and 2 hours after the close.
A representative for the SEC did not immediately respond to CNBC’s request for comment.
Robinhood is not alone in seeking more trading hours than the norm, especially in a world where cryptocurrencies are traded 24 hours a day including weekends. A start-up backed by Steve Cohen, 24 Exchange, has filed a draft application with the SEC to provide 24-hour stock trading and told CNBC it expects a decision this summer.
Robinhood ended 2021 with 22.7 million net cumulative funded accounts, with more than 10 million of the accounts being added in 2021 alone. However, the latest quarter showed the broker lost monthly active users last quarter. Shares of Robinhood tumbled as much as 15% in after hours trading after the company gave a weak revenue forecast for the first quarter.
—With reporting by Tom Franck and Yun Li

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People wait in line for t-shirts at a pop-up kiosk for the online brokerage Robinhood along Wall Street after the company went public with an IPO earlier in the day on July 29, 2021 in New York City.
Spencer Platt | Getty Images News | Getty Images

Check out the companies making headlines after the bell: 
Robinhood — Shares of the trading app plunged a whopping 15% after the company gave a disappointing revenue forecast for the first quarter of 2022. Its latest earnings report also showed a decline in users. Monthly active users fell to 17.3 million last quarter from 18.9 million in the third quarter.

Apple — The tech stock rose more than 2% in after-hours trading after the company reported its largest single quarter in terms of revenue ever. Its sales grew more than 11% even amid supply challenges and the lingering effects of the pandemic. Apple beat analyst estimates for sales in every product category except iPads.
Visa — The credit card company saw its shares jump 5% in extended trading after a better-than-expected earnings report. Visa’s adjusted earnings per share came to $1.81, higher than a Street estimate of $1.70 per share, according to Refinitiv. Its revenue also topped expectations.
Western Digital — Shares of the data storage company slid 12% in extended trading even after a strong earnings report. The company’s EPS came in at $2.30 per share, compared with an estimate of $2.13 per share, according to FactSet. Sales also beat analysts’ forecast. The stock has fallen more than 17% in 2022.

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Drakula & Co. | Moment | Getty Images

The pandemic has upended millions of American lives, and for many has made them reconsider priorities around work.
That’s prompted many to quit jobs amid the so-called Great Resignation. In November, a record 4.5 million workers left their jobs, according to data from the Labor Department.

There are also signs that people are open to shifting careers for jobs that better fit their new pandemic normal. About two-thirds of working adults said that work-life balance is more important to them than having a higher salary, according to KeyBank’s 2022 financial mobility survey.  
The survey also found that many Americans’ priorities shifted to include more time with friends and family.
“If you know a bigger paycheck is no longer your priority and spending time with family and friends is, there’s probably going to be some financial ramifications,” said Mitch Kime, head of consumer lending and payments at KeyBank. “That’s okay.”
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Another survey of workers from Paro, which provides accounting and finance solutions for businesses, focused on those who think for a living – such as programmers, pharmacists and lawyers. The survey found the group also prioritized their work-life balance over making more money.

Some may also consider taking a pay cut to have a better balance between work and life, or to change careers to something more meaningful.
“The pandemic and experiences they have had have shifted their values,” said Anita Samojednik, CEO of Paro. “Right now, the salary is just not enough.”
What to consider
Of course, taking a pay cut will directly affect your finances and may not be advisable right away, according to Tania Brown, an Atlanta-based certified financial planner and founder of FinanciallyConfidentMom.com.
If you’re considering taking a job where you will make less money, there are a few things you need to consider before you make any moves, she said.
The first thing is to ask yourself why you want to leave your current job. Are you burned out? Will a different job or career be more fulfilling? Are you planning to move?

Doing this ensures you don’t make a rash decision you’ll later regret, said Brown.
“Emotions have no logic, and you’re trying to make a math decision based on emotion,” Brown said. “It’s just not going to turn out.”
If you’re only a few months from paying off debts or hitting another financial goal, you may want to hold off.
Plus, you may realize you don’t want to leave your job, but instead would like more flexibility or a change in your role. If this is the case, now is a great time to ask for a different schedule, to take on different responsibilities or introduce other flexibility into your job, Samojednik said.
“There is a lot more flexibility,” she said. She added that she’s seen many people dip their toes into freelancing in addition to a full-time job to test the waters of a new gig or becoming their own boss.
The math
But, if you discover that switching jobs is truly what you want, then you have some important math to do, Brown said.
This includes looking at your current budget and financial goals and seeing if you can still make them work on a smaller income.
If you will need to trim your budget, Brown suggests living as though you’ve already taken the pay cut for a few months to see how it works out. It will give you a test-run of what life will be like with a smaller salary and help you decide if a pay cut is truly what you want.

You should also think about how making less will impact your long-term goals, Brown said. If you’re saving up for a house or plan on having a baby, how will your new income change the timelines on those milestones? If it will take longer, is it worth it to you to wait?
If you’re part of a family, you should also consult the other members in your household. That means talking with your spouse and children about what changes would take place, such as fewer trips or less money for extra activities, and deciding if it works for everyone.
“This has to be a family decision because your decision is impacting everyone in the household,” said Brown.
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The idea of higher interest rates have spooked stock investors.
The S&P 500 stock index is down more than 9% in January as of 2 p.m. ET Thursday.
A slower U.S. economy (and lower corporate earnings) as well as the prospect of less risky assets like bonds becoming more attractive may result from higher interest rates, according to financial experts.

Traders work on the floor of the New York Stock Exchange at the opening bell Jan. 25, 2022.
TIMOTHY A. CLARY | AFP | Getty Images

The specter of rising interest rates is spooking the stock market.
The Federal Reserve, the U.S. central bank, is expected to increase its benchmark rate several times this year to tame stubbornly high inflation. Fed chair Jerome Powell affirmed that likelihood on Wednesday.

The move would increase borrowing costs from near zero — where they’ve been since the beginning of the Covid pandemic — for businesses and consumers.

The forecast has caused stocks to nosedive in January.
The S&P 500 index is down about 9% for the year. At one point this week, the basket of U.S. stocks dipped below 10% — the first time that’s happened since the initial pandemic turmoil of March 2020. The index closed down 0.2% Wednesday after Powell’s remarks, erasing earlier gains.

Cooler economy

Why does the stock market care?
Broadly, the reasons seem to be twofold: A slowdown of the U.S. economy and the prospect of other investments like bonds becoming more attractive relative to stocks.

When the Fed raises its benchmark interest rate, banks and lenders tend to raise borrowing costs, too. Mortgages, credit cards and other debt become pricier, reducing consumer spending and demand. Businesses also pay more to finance their operations.
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Broadly, this dampens the outlook for company profits and reduces investor enthusiasm for buying their stock.  
“A tightening of monetary policy will put pressure on economic activity,” according to Blair duQuesnay, a certified financial planner and investment advisor at Ritholtz Wealth Management, who is based in New Orleans. “And it’s by design.”

Too far, too fast?

The Fed’s “design” is to cool off inflation. Consumer prices jumped 7% in December from a year earlier, the fastest pace since 1982.
But the stock market isn’t reacting just to a likely rate bump; stock gyrations have as much to do with uncertainty over how fast the Fed will accelerate.
“What the market doesn’t like, is rapid changes in the monetary landscape,” according to David Stubbs, the global head of cross-asset thematic strategy at J.P. Morgan Private Bank.

When inflation began accelerating in early 2021, Fed officials signaled it was likely temporary, the short-term result of a hyperactive economy emerging from its pandemic hibernation.
Now, their tone has shifted as inflation has lingered well above the Fed’s 2% long-run target. In large part, that seems due to consumer demand for physical goods outstripping supply, as Covid continues to disrupt manufacturers.
“Since the December meeting, I would say that the inflation situation is about the same but probably slightly worse,” Powell said Wednesday. “I think to the extent the situation deteriorates further, our policy will have to address that,” he added.

Investors worry an aggressive Fed response may slam the brakes on the economy — though Powell has sought to reassure the policy response will be “nimble.”
Anxiety over that outcome is the main reason for market jitters, according to CFP Lee Baker, founder of Apex Financial Services in Atlanta.
“What are the trickle-down effects if the Fed raises rates too far, too fast? If it slows down the economy, what does that do to [company] earnings? You just sort of follow that domino,” Baker said. “If you’re talking about earnings, you’re talking about stocks.”
(This discussion is relative to a broad basket of U.S. stocks. It’s not true that all companies necessarily suffer if rates rise. Some may do better — like a bank, for example, that charges more to lend.)

Stocks lose luster

If rates rise, investors may see more value in bonds, certificates of deposit and other assets thought to be less risky than stocks.
Yields in those conservative assets have been relatively paltry since the 2008 financial crisis, which led to a prolonged period of rock-bottom interest rates to spur the economy.

Maybe [stocks] should sell off despite anything else.

Blair duQuesnay
CFP and investment advisor at Ritholtz Wealth Management

Investors looking for returns were essentially “forced” into stocks, Baker said.
The value proposition may change, if bond yields and CD rates move upward in tandem with the Fed’s benchmark rate.

Other factors

Though it seems to play the biggest role, Fed policy isn’t the only thing putting investors on edge.
For one, there’s the prospect of war between Ukraine and Russia. Those geopolitical tensions fuel more uncertainty — for example, how might the energy sector be impacted if fighting breaks out?
The stock selloff may be a good thing, independent of what’s causing it, duQuesnay said. The Federal Reserve is discussing higher interest rates because the economy and labor markets are strong; a reduction in stock prices may also tether lofty company valuations more to reality, she said.
“If you take away all the outside news and information about the stock market, it’s gone up double digits for three years in a row,” according to duQuesnay. “Maybe it should sell off despite anything else.”

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