The US Stock Market's Perpetual Rise: A Complex System at Work
Through analysis of market dynamics, institutional behavior, and economic policy, this article explains why the US stock market continues to rise despite varying economic conditions, highlighting key factors driving its sustained growth.
The US stock market’s seemingly perpetual rise has puzzled many observers, particularly when it climbs during both economic prosperity and downturns. This phenomenon reflects a sophisticated interplay of multiple factors rather than a simple upward trajectory.
At its core, the US stock market benefits from a powerful institutional framework. The market houses the world’s premier companies, attracting global talent and capital. Companies like Apple, Microsoft, and Meta have demonstrated remarkable growth, with their 2023-2024 earnings significantly outperforming their 2019 figures. These companies' success isn’t mere speculation - it’s backed by substantial innovation and market dominance.
Stock buybacks play a crucial role in sustaining market momentum. Take Apple as an example - the company has repurchased approximately $700 billion worth of shares in recent years, representing a significant portion of its $3.6 trillion market capitalization. These buybacks both signal management confidence and reduce available shares, supporting stock prices.
The Federal Reserve’s monetary policy significantly influences market behavior. During economic difficulties, the Fed’s willingness to provide liquidity and lower interest rates creates a supportive environment for stocks. This “Fed put” has become a reliable market backstop, though it’s important to note this doesn’t eliminate all risk - as demonstrated during the sharp COVID-19 related decline in 2020.
Global capital flows provide another crucial support. The US market attracts retirement funds not just from America but from Europe, the Middle East, and beyond. This consistent institutional investment creates a structural bid for US equities, particularly in quality companies with strong fundamentals.
However, this doesn’t mean the market only moves upward. Historical data shows significant drawdowns, including the 1929 crash, the 2008 financial crisis, and more recent corrections. What’s notable is that each recovery has ultimately led to new highs, reflecting the underlying strength of the American economic system and its leading companies.
Market behavior also shifts based on prevailing conditions. During 2022-2024, trading logic evolved from “rate hike/cut trading” to “recession trading,” demonstrating how market participants adjust their focus based on changing economic circumstances. This adaptability helps maintain market functionality across different environments.
The quality differential between US and other markets remains substantial. American companies' global reach, innovation capacity, and ability to attract international talent create a compelling investment case. This is evidenced in the leadership of major technology companies, where diverse global talent drives innovation and growth.
Yet investors should maintain perspective. While the US market has demonstrated remarkable resilience, it isn’t immune to significant corrections. Economic fundamentals ultimately matter, and periods of excess can lead to painful adjustments. The market’s long-term upward trajectory reflects real value creation, but the path is rarely smooth.