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