This is one of the questions I get periodically, especially with so much negative news filling our news feeds.

One simple reason is found in two words: earnings growth.

The stock market is made up of shares in publicly traded companies, and many of those publicly traded companies are currently making money and expect more money to be made in the future. Therefore, they are worth more.

Recently, Exhibit A released a great chart to illustrate this:

“But wait,” one might say.

“There are troubling things happening in the world.” Yes.

“Gas prices are going up.” True. Filling up the gas tank strains the pocketbook.

“The robots are taking over.” I’m team humanity.

“The President uses it to make decisions.” Likely true.

Sometimes the answer really is as boring as earnings.

You don’t always need a revelatory chart or secret mathematical equation or cabal of ultra-rich people pulling strings to explain it.

I’m not saying it won’t go down. For example, price-to-earnings ratios — how expensive the market is — are high by historic standards. And earnings outlooks could change, which is why investors must always be prepared for the stock market to go down.

But even if the bears turn out to be right and the stock market drops, don’t forget: Historically, the stock market usually goes up.

Financial author Ben Carlson ran the numbers going back nearly a century:

The U.S. stock market has experienced positive returns:

  • 56% of the time on a daily basis
  • 63% of the time on a monthly basis
  • 75% of the time on a yearly basis
  • 88% of the time on a 5 year basis
  • 95% of the time on a 10 year basis
  • 100% of the time on a 20 year basis. (1)

So one simple answer to the question: “Why does the stock market keep going up?” is “Because that’s normally what happens.”

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Source:

1. “The Stock Market Usually Goes Up (But Sometimes it Goes Down)”, May 21, 2023. Accessed online.

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Brandon Stockman has been a Wealth Advisor licensed with the Series 7 and 66 since the Great Financial Crisis of 2008. He has the privilege of helping manage accounts throughout the United States and works in the Fortuna office of Johnson Wealth Management. You can sign up for his weekly newsletter on investing and financial education or subscribe to his YouTube channel. Securities and advisory services offered through Prospera Financial Services, Inc. | Member FINRA, SIPC. This should not be considered tax, legal, or investment advice. Past performance is no guarantee of future results.