Interest rates and inflation rates as components of nominal interest rates, are some of the most important macroeconomic variables, and their impact on stock markets is a subject of academic research, as well as daily financial news. Sudden shocks, or unexpected changes in interest rates, have had a strong impact on stock prices, but this relationship is neither simple nor unambiguous. This paper provides an overview of the theoretical basis of how interest rates and stock markets function, their interrelation, and the professional literature that has addressed this topic. There is no consensus on how interest rates affect stock prices, especially due to the complexity of the relationship and the different ways of measuring both variables. The distinction between using nominal and real data, i.e., the impact of inflation, significantly influences the results. Another issue in analyzing the relationship is the question of the direction of causality: even when a correlation between interest rate movements and stock prices is detected, it is not certain whether the latter were influenced by the former, the former by the latter, or both by some third factor. The paper concludes with an analysis of historical data, highlighting the importance of choosing the right approach and appropriate variables. When the data is analyzed as episodes of sudden increases or decreases in interest rates, and real data or, even better, Shiller's CAPE ratio is used as variables, it can be concluded that, in the past, interest rates have had a negative impact on stock price levels.