The effects of negative and positive interest rate regimes on equity markets are complex and have been widely debated by economists and investors alike. Negative Interest Rate Regime:- In a negative interest rate environment, central banks charge commercial banks to hold excess reserves. This unconventional monetary policy tool is typically used to stimulate economic growth by encouraging borrowing and investment. However, its impact on equity markets can be mixed: Stimulative Effect: Lower interest rates can boost corporate earnings by reducing borrowing costs and stimulating economic activity. This can result in higher stock prices as companies benefit from lower financing costs and improved profitability. Uncertainty and Risk Aversion: Negative interest rates can create uncertainty, leading to increased risk aversion among investors. Concerns over the long-term health of the economy may arise, potentially causing increased market volatility and declines in stock prices. Positive Interest Rate Regime: In a positive interest rate environment, central banks raise interest rates to control inflation and stabilize economic growth. This has several potential effects on equity markets: Higher Cost of Capital: As interest rates rise, the cost of capital for businesses increases. This can negatively impact profitability and reduce stock prices, particularly for companies that rely heavily on borrowing to finance their operations. Reduced Economic Growth: Rising interest rates can slow economic growth by making borrowing more expensive for consumers and businesses alike. This can lead to lower corporate earnings and weaker demand for equities, which may dampen stock prices. Increased Bond Performance: As interest rates rise, bond performance become more attractive to investors. This may cause funds to flow away from equities and into bonds, potentially reducing demand for stocks and exerting downward pressure on stock prices. In the nutshell, the impact of negative and positive interest rate regimes on equity markets is nuanced and can vary depending on several factors, including the prevailing economic conditions, the duration of the rate regime, and investor sentiment. While negative interest rates can stimulate economic activity and potentially boost stock prices in the short term, they may also create uncertainty and increase market volatility. In contrast, positive interest rates can have a more suppressive effect on equity markets, particularly in the short run, due to higher borrowing costs, slower economic growth, and the attractiveness of bonds relative to stocks. 

Negative vs. Positive Interest Rates: Impact on Equity Markets