Why Does the Stock Market Keep Going Up?
And what it means for the economy and the future
An ominous milestone was reached this past week with the S&P 500 hitting yet another all-time high while, simultaneously, the University of Michigan’s consumer sentiment report, which has been issued monthly for nearly 75 years, hit an absolute all-time low. Holy cow. Even to someone who follows this stuff pretty closely, the stark juxtaposition feels jarring. The stock market is quite literally better than it has ever been, while people in aggregate are feeling worse than they ever have about the economy.
A quick look at the numbers: The S&P 500 actually hit all-time highs for four consecutive days this week, closing higher on the week for the ninth week in a row, which is the longest winning streak the index has seen since 2023. The index is up 10.5% for the year so far.
Moreover, not only is the 10.5% rise this year a bit surprising based on everything that is going on in the world, it comes on the heels of double-digit increases in each of the last three years; The S&P 500 was up 24% in 2023, 23% in 2024, and 16% in 2025. Although the stock market historically has more good years than bad, it is relatively rare to see such robust gains over such a sustained period, which is why many market observers (including me) have been anticipating a pullback. Yet the market keeps climbing.
I remember an old cliché I would share with customers when I was in the investment business that was meant to temper expectations and remind people that there is always a risk of loss when investing in the stock market. “You know, someone could sneeze in the Middle East, and the markets could drop 25%,” we would say. Obviously, that has not been the case this year. Markets have been amazingly resilient not just to conflict in the Middle East, which has resulted in disruption to global supply chains and sharply higher gas prices around the world, but also to political turmoil here at home and a general sense of economic unease throughout various industries and geographies from Silicon Valley to New York to London to Asia.
So, why?
The answer begins with an important reminder: the stock market is not a measure of how average Americans are doing. It is a measure of what investors believe companies are worth based on their current and future earnings. And right now, corporate America is doing pretty well.
Profits remain remarkably strong, first and foremost. Per Charles Schwab, first quarter earnings for companies in the S&P 500 were up about 28% year-over-year, which is a remarkably robust rate of growth. At the beginning of the year, analysts were projecting 15% growth. Per Liz Ann Sonders from Schwab:
That 13-plus percentage point upward revision is one of the more pronounced positive intra-quarter upgrades in recent cycles and reflects a combination of genuine outperformance—particularly in the Technology and Communication Services sectors…
…So far during this reporting season, both the earnings and revenues beat rates have moved higher and are tracking well above historical medians. Absent a significant shift in the macro landscape, it’s expected that earnings growth can remain strong in the second quarter.
Most of the largest companies in the stock market operate on a global scale, meaning their fortunes are not tied exclusively to the health of the American consumer. Companies such as Apple, Microsoft, Alphabet, Amazon, and Nvidia generate revenue from around the world. Their earnings are influenced by global demand, technological innovation, and productivity gains as much as by what is happening in any particular part of the U.S.
But among those variables, productivity gains and expense reductions are the two key points here. Businesses have been aggressively managing costs, and, of course, to many businesses, one of the most significant costs is labor. Businesses large and small have been managing their expenses through hiring freezes, layoffs, and automation, including the sudden and robust implementation of AI. Those decisions may create anxiety for workers, but they generally improve profitability, for better or worse, for companies.
The rise of artificial intelligence has only accelerated investor enthusiasm. Whether AI ultimately transforms the economy as dramatically as its proponents claim remains to be seen, but investors are increasingly betting that many companies will be able to produce more output with fewer workers, which will lead to higher stock prices.
In Q4 of 2025, 331 earnings calls among S&P 500 companies saw their CEOs mention “AI,” an all-time high. My belief on this is that AI is, indeed, being implemented in widespread ways, so of course it is going to be noted in earnings reports. But executives are almost compelled to discuss AI in order to meet investor demands for AI implementation, or at least to signal to the investor community that they are mindful of the productivity gains and expense reductions that can be potentially found therein.
The irony is that at a time when Americans are most pessimistic about their long-term job prospects due to AI, corporate America is not only embracing it, but signaling their adoption of it as a way to attract and retain shareholders and, ultimately, to boost their share prices.
AI productivity gains and personnel reductions are not the only factors at play, of course. Most notably, an increasingly business-friendly regulatory environment that is more permissive of mergers and acquisitions, less concerned about monopolies, and more willing to reduce red tape and restrictions on various types of business activity have all helped lead to a generally less regulated business landscape. These topics are all a bit beyond the scope of today’s article, but worth mentioning for sure, as AI is the headliner right now, but the more permissive business landscape under current leadership in Washington D.C. is a major factor, as well. Some aspects of deregulation may be even more impactful on certain industries over the long haul than AI, in fact.
One additional quick note: AI-related stocks have done particularly well over the past few years, so much so that they represent a larger and larger portion of the S&P 500 as a whole. Not all 500 stocks in the index are weighted equally. Nvidia, for example, is just one company, but it represents about 8% of the index due to its size and stature. When the overweight stocks like Nvidia do well, which they generally have over the past 3-4 years, it helps pull the entire index along. Someday, if there is a sharp pullback in AI-related technology stocks, the overall index will correspondingly drop in an exaggerated way. For now, a portion of the gains in the S&P 500 index as a whole are attributable to certain industries, including technology, doing particularly well of late.
What About Regular Americans?
The question on the opposite side of the coin that should be asked alongside why the stock market is doing so well is why ordinary Americans are feeling so bad.
You might reasonably expect people to feel better about their own finances thanks to swelling balances in their investment accounts, especially retirement accounts. In fact, more Americans are invested in the stock market than ever before. When Ronald Reagan left office at the tail end of the 1980s, most Americans had little direct connection to Wall Street. In 1989, only about one-third of U.S. households owned stocks either directly or through retirement accounts. Today, however, roughly six in ten Americans have money invested in the market. Much of that shift is attributable to the rise of the 401(k), which transformed millions of workers from wage earners into investors and tied household finances more closely than ever to the fortunes of Wall Street.
But there are two main reasons why the four-year stock market surge we have seen in recent years is not leading people to feel better about their finances or the economy. First, retirement savings are meant to be just that: money for retirement. A 20% jump in a Fidelity 401(k) is certainly better than a 20% drop, but to a 30-year-old young professional trying to buy their first home, to a 40-year-old single parent struggling with grocery prices, or to a 50-year-old office worker wondering what AI might mean for their career, the health of a retirement account is not necessarily among their top financial concerns. That money feels distant. It is real, but it is also largely inaccessible. It sits behind age requirements and early-withdrawal tax penalties, while today’s bills arrive with remarkable punctuality. A rising retirement account may provide comfort, but it does not help much when housing costs, healthcare expenses, childcare bills, and everyday necessities are consuming a growing share of a family’s monthly income.
Second, although more Americans are invested in the stock market than ever before, stock ownership remains highly concentrated. By some estimates, the top 10% of households own roughly 90% of all stocks. That means that while millions of Americans participate in the market, the overwhelming majority of gains accrue to a relatively small group of investors. This mathematical reality has contributed to an increasingly wide asset gap.
Consider two hypothetical investors. One has a portfolio worth $5 million. The other has a retirement account worth $30,000. If the market rises 10%, the first investor gains $500,000 while the second gains $3,000. Both investors earned the same return. Both benefited from the same market. Yet one gained more wealth in a single year than most Americans earn from working full-time for that same 12-month period.
Through the miracle of compounding, the gap widens even further over time. The investor who now has $5.5 million in this hypothetical example enters the following year with a much larger base from which to grow. The investor with $33,000 benefits from compounding as well, but on a dramatically smaller scale. The result is that a rising stock market can simultaneously improve financial outcomes for millions of Americans while dramatically increasing the wealth of those who already possess substantial assets.
What Does It All Mean?
I hope long-time readers will appreciate that I am not prone to hyperbole and generally try to keep a balanced perspective on things. That said, this level of economic inequality is the stuff of revolutions. The French Revolution is perhaps the most famous example. By the late eighteenth century, France’s aristocracy enjoyed enormous privileges while many ordinary citizens struggled with rising food prices, stagnant wages, and financial hardship. The revolution that followed was driven by many factors, but economic inequality and a growing perception that the system was fundamentally unfair were central themes (sound familiar?).
The Russian Revolution emerged under different circumstances but followed a somewhat similar pattern. Vast disparities between elites and ordinary workers and peasants created fertile ground for political upheaval. More recently, elements of the Arab Spring were fueled by economic frustration, particularly among younger generations who increasingly felt shut out of opportunity while politically connected insiders prospered.
History never repeats itself exactly, but it often rhymes, as the saying goes. When large numbers of people conclude that the economic system no longer works for them, political movements emerge that promise dramatic change. Sometimes those movements are constructive. Sometimes they are destructive. Almost always, however, they are disruptive.
Am I suggesting that the United States is on the precipice of an eighteenth-century-style revolt complete with guillotines in the town square? Not really. But it should not surprise anyone that populism is gaining strength across much of the developed world, and its growing from both the traditional political left and the political right.
On the political right, movements have emerged that rail against elites, institutions, globalism, and entrenched power structures. On the political left, many leaders have increasingly focused their attention on billionaires, corporations, concentrated wealth, and economic inequality. The details differ, but the underlying frustration often comes from the same place: a growing belief that the people making the rules are benefiting from a system that is leaving everyone else behind.
And perhaps that brings us back to the remarkable milestone that occurred this week. The stock market is reflecting the reality of a highly profitable, technologically advanced, globally connected economy that continues to generate enormous wealth. Consumer sentiment is reflecting the reality of millions of Americans who feel squeezed by housing costs, healthcare costs, childcare costs, grocery bills, and uncertainty about the future.
The danger now is that more and more Americans may come to believe these stock market records have little to do with their own lives. If that perception continues to grow, the real story of 2026 may not be the remarkable strength of the markets, it may be the widening gap between those who own a meaningful share of America’s assets and those who simply work in its economy. And that gap, far more than any market correction or recession, may prove to be the defining political and economic challenge of the next generation.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Thoughts and opinions here do not represent First National Bank.