The Interest Rate
Essentially, interest is nothing more than the cost someone pays for the use of someone else's money. Homeowners know this scenario quite intimately. They have to use a bank's money, through a mortgage, to purchase a home, and they have to pay the bank for the privilege. Credit card users also know this scenario quite well - they borrow money for the short-term in order to buy something right away. But when it comes to the stock market and the impact of interest rates, the term usually refers to something other than the above examples - although we will see that they are affected as well.
When the feds raise interest rates, it contracts the economy. They want to control how fast the economy goes. So when they increase interest rates, people will be more hesitant to invest. It is a cause/effect situation, and it is intentionally so, because raising interest rates makes it harder for people to take that step and invest.
When the Fed raises interest rates, it negatively affects the stock market. The Fed uses interest rates to control inflation by limiting the amount of money that's available for banks to borrow. Raising interest rates lowers the supply of available money, making it more expensive to borrow. When Federal Reserve interest rates are high, banks respond by also raising their interest rates. Consumers, then, cannot afford to finance as much purchasing power, so they buy less. Reduced profits result in reduced revenue, which decreases businesses' value on the stock market. If this happens on a nationwide scale, the stork market's value will also decrease, making it less profitable for investors. So, indirectly, raising interest rates is bad for investors.
As stock market can be sometime very volatile. In order to gain profit, investor's are sometimes taking huge risk. Fed interest rates increase may help to control the credit flow. Investors become very careful before taking any investing decision. Therefore they may be engaged in an indepth research in order to determine the optimum investment.