On September 16 the Federal Reserve raised its benchmark rate by a quarter point, to a range of 3.75% to 4%. It was the first increase since 2023, and the statement said plainly that inflation remains elevated. The following week the 10-year Treasury yield touched 5.225% before settling back near 5.2%.
The standard reaction writes itself. Higher rates are bad for growth stocks, because so much of a growth company's value sits in cash it won't earn for years, and a higher rate shrinks what that future cash is worth today. That argument is correct as far as it goes. But it rests on an assumption that almost nobody states out loud, and I learned how much that assumption matters the embarrassing way.
A quick primer: who sets which rate
It's easy to hear "the Fed raised rates" and assume every interest rate went up. That isn't quite how it works, and the difference is the key to this whole question.
The Federal Reserve sets one rate directly: its target for the federal funds rate, the interest banks charge each other to borrow overnight. A committee of twelve voting members meets eight times a year to decide it. When inflation runs hot, the Fed raises that target so borrowing costs more and spending cools. When the economy weakens, it cuts to make borrowing cheaper. A "quarter point" is a quarter of one percentage point, so September's move took the top of the range from 3.75% to 4%.
The 10-year Treasury yield is different. Nobody sets it. It's the return investors demand for lending the U.S. government money for ten years, and it moves every day as they buy and sell those bonds. It reflects where people expect the Fed's rate to average over the next decade, how much inflation they expect, and extra pay for tying money up that long. Fixed mortgage rates tend to follow it too.
Usually the two move in the same direction, but not always. From September to December 2024 the Fed cut its target by a full percentage point, and the 10-year went up anyway, from about 3.7% to about 4.6%.
For a stock investor, the 10-year is the one to watch. It's what you can earn with essentially no risk, so every stock is competing with it. When a safe government bond pays 5.2%, a company's future profits have to look better to be worth the same price. That is the whole reason higher rates are supposed to hurt stocks, and growth stocks most of all.
My model had the rate wrong for five months
Most stock pages on this site carry a discounted cash flow estimate: a rough read on what a business is worth based on the cash it should produce. Every DCF needs a starting interest rate, normally the 10-year Treasury yield. Mine used 4.5%. It was typed in as a fixed number when the site was built, and it stayed there from at least late April until September 21. In late April that was close enough: the real 10-year was about 4.35%. By September it had climbed to nearly 5%, and the model never noticed.
I honestly didn't realize it until I sat down to write this piece. We are building a large database with a lot of features and moving parts, and this was an oversight that lasted too long. The site now reads the live 10-year every weekday evening. As of Monday, September 28's close it was using 5.24%.
What a higher rate actually does to a valuation
Here is how the model turns that rate into a price for risk. It starts from the 10-year yield and adds a premium scaled to how much the stock tends to swing with the market, the standard textbook approach, and keeps the result between 6% and 15%. Future cash is discounted at that rate. After ten years, the model assumes the business grows at a steady long-run pace forever.
So when the 10-year goes up, every future dollar is worth a little less today. To see how much, I ran the model's own DCF on the 159 top-ranked companies it can value, twice:
- Raise the rate from 4.5% to today's 5.24% and change nothing else: the median fair value falls 10%.
- Raise the rate the same amount, but let the long-run growth rate rise with it: the median fair value falls 2.4%.
Same companies, same cash flows, same rate. One assumption separates a 10% haircut from a trim of about 2%. The chart runs the same comparison across a range of rates, and the gap widens the higher the 10-year goes.
| 10-year yield | Long-run growth stays at 3% | Long-run growth moves with rates (the site) |
|---|---|---|
| 4.0% | +8.1% | +1.7% |
| 4.5% (the old fixed rate) | 0% | 0% |
| 5.0% | −7.0% | −1.6% |
| 5.24% (Monday's close) | −10.0% | −2.4% |
| 5.5% | −13.1% | −3.2% |
| 6.0% | −18.5% | −4.8% |
The assumption hiding in the textbook answer
That assumption is why the rate went up.
An interest rate has two parts: compensation for inflation, and the real cost of borrowing on top of it. If the 10-year rose because investors expect more inflation, then a company's future revenue and cash should also be quoted in more inflated dollars. The higher discount rate and the higher long-run growth largely cancel. If the 10-year rose because real borrowing costs went up, nothing cancels, and the textbook haircut is right.
The "rates crush growth" story quietly assumes the second case. The model now assumes something closer to the first: it keeps the long-run growth rate a fixed 1.5 points below the 10-year, so the two move together. With the 10-year at 5.24%, that puts long-run growth at 3.74%, up from the 3% it sat at before.
That is a judgment call, and I want to be plain about it rather than bury it. I didn't build the model to guess which kind of rate move we're in. The model's job isn't to focus on subjective maybes. It uses the data to highlight strong fundamentals, and a question this abstract is for you to judge. If you believe real rates are climbing, you should mentally shade the fair values on this site lower than they read.
The number I'm most embarrassed by
Fixing the rate was not the most important thing that came out of this.
When we went through the DCF, the page for Capital One was telling readers the stock was worth about $974 against a price of $205, and calling the gap a margin of safety. That number was nonsense. A DCF built on free cash flow is the wrong tool for a bank, where lending and deposits make "free cash flow" mean something else entirely. It's the same reason I don't rank banks with the rest of the model, which I wrote about in why I don't rank banks. The model now shows no fair value at all for banks, insurers, REITs, and other financial companies.
That mistake taught me more than the rate did. Being accurate with the data matters at all times, not just when someone is looking. Small changes can have large downstream effects, and a number that is confidently wrong does more harm than no number at all.
What the rankings do with all this
Something that surprises people: the DCF has no say in the rankings. I explained why in why the DCF doesn't move my score. The score that ranks every company and picks the Top 30 is built from quality, growth, and value measures, and none of them reads the 10-year. The rate change moved the fair value printed on each page, not the score behind the rankings.
Where rates reach the score is through prices. If growth stocks sell off, the value side of the score notices, though less than you might expect. Most of it compares a company's price with its sector peers', so when a whole sector falls together, those comparisons barely move. The part that reacts most is the one that compares a company's valuation with its own history, and that part is about 30% of the value score. A great business trading well below its usual multiple is exactly what that part is there to catch.
What I'm doing with my own money
Not much, and that is deliberate. I'm a young investor with decades ahead of me, so I'm not reacting strongly to the rate hikes. If anything, I'm not so secretly hoping growth stocks go down so I can buy great companies at a much better valuation.
I think short-term volatility may follow the rising rates. In the long run, I think they're going to be a gift for those with a long-term vision: higher rates mean lower prices for the same quality businesses, as long as the businesses themselves keep compounding.
So, what is a growth stock worth now? Less than it was if real rates really are rising, and about the same if this is mostly inflation. The site will show you the live number either way. Deciding which world we're in is your call, and it's the right place for that call to sit.
This is my personal view and not investment advice. Scores and fair values on this site are research tools; they don't know your goals or your risk tolerance. Do your own research before buying or selling anything.