The uncomfortable fact about the stock market’s historic run is that no one is sure why it’s happening
Can anything stop the stock market? The U.S. economy recently weathered the worst pandemic in 100 years, the worst inflation in 40 years, and the highest interest rates in 20 years. Yet from 2019 through 2024, the S&P 500 grew by an average of nearly 20 percent a year, about double its historical average rate. Despite President Donald Trump’s erratic economic policies, which include the highest tariffs since the 19th century, the market is already up by about 8 percent in 2025.
As the stock market soars ever higher, the theories of why it rises have suffered the opposite fate. One by one, every favored explanation of what could be going on has been undermined by world events. The uncomfortable fact about the historic stock-market run is that no one really knows why it’s happening—or what could bring it to an end.
According to textbook economics, the stock market’s value reflects what are known as “fundamentals.” An individual company’s current stock price is derived from that firm’s future-earnings potential, and is thus rooted in hard indicators such as profits and market share. The value of the market as a whole, in turn, tends to rise and fall with the state of the broader economy. According to the fundamentals theory, the market can experience the occasional speculative bubble, but reality will bite soon enough. Investors will inevitably realize that their stocks are overvalued and respond by selling them, lowering prices back to a level that tracks more closely with the value justified by their fundamentals—hence the term market correction.
The fundamentals story held up well until the 2008 financial crisis. Within six months of the U.S. banking system’s collapse, the market fell by 46 percent. In response, the Federal Reserve cut interest rates to almost zero and pushed money back into the economy by purchasing trillions of dollars in securities from financial institutions.
The Fed’s goal was to get the economy going again quickly. This didn’t happen. For most of the 2010s, corporate earnings were modest, GDP and productivity growth were low, and the labor market remained weaker than it had been before the crisis. In other words, the fundamentals were not great. Yet the stock market soared. From 2010 to 2019, it tripled in value. [Continue reading…]