Have you ever wondered what makes stocks go up? The secret sauce is simple: profits.
Over the long haul, it’s all about how much money companies are making. When earnings rise, stock prices tend to follow—like a market version of Newton’s law. What goes up usually keeps going up, as long as the money keeps flowing.
And guess what? Profits are up, big time! This week’s chart shows that U.S. corporate profits hit a brand-new all-time high in the second quarter.
As the chart shows, profits have been steadily rising for years, which explains the market’s climb. The only hiccups? Recessions—when profits usually take a dip.
But here’s some more good news: the economy’s still holding strong. With the Fed cutting rates, they’ve put a safety net under the job market, lowering the odds of a recession over the next 6-12 months. That’s more fuel for profit growth and the stock market.
Bottom line: profits drive stock prices, and right now, they’re headed in the right direction. While we don’t have a crystal ball, this chart gives us plenty of reason to be optimistic about what’s next.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.