Turn on the news for five minutes, and it feels like everything is on the verge of falling apart. Inflation is still lingering. Geopolitical tensions are rising. Political uncertainty feels constant. Markets are “expensive.” And yet—despite all of it—the market keeps climbing. It doesn’t feel right. It doesn’t feel sustainable. And for many investors, it raises a deeply uncomfortable question: “How can the market keep going up with everything that’s going on?” If you’ve found yourself thinking that, you’re not alone.
The explanation, however, is far simpler than it feels: Markets don’t move based on headlines. They move based on earnings. Right now, corporate earnings are at or near record levels. The S&P 500 is expected to generate roughly $365–$370 in earnings over the next 12 months—a forward-looking window that reflects what companies are about to earn, not what they’ve already earned. And what they’re about to earn is more than ever before.
When investors say the market feels expensive, they’re usually focused on valuations—and while it’s true that valuations are above long-term averages, they are not what ultimately drive markets. Earnings do. Today’s reality is straightforward: earnings are strong, earnings are growing, and the market is responding to that growth.
To fully understand what’s happening, it helps to zoom out. The U.S. economy is now roughly $32 trillion in size which is at or near an all-time high. Meanwhile, the S&P 500 represents about $60 trillion in market value. Think about that: The largest publicly traded companies are collectively worth nearly twice the size of the entire economy. This isn’t, as many investors often perceive, a fragile system. Quite the contrary, it’s the largest and most productive economic engine in history.
The Hidden Force: Demographics
Beneath the surface, a powerful force is at work, one that doesn’t get nearly enough attention: Demographics. Baby boomers control approximately $85–90 trillion of wealth, which is about half of all U.S. household wealth. At the same time, consumer spending drives roughly two-thirds of economic activity. Put those together, and the conclusion is hard to ignore: The group with the most wealth is also the group driving the majority of spending. And behavior matters. This generation is retiring, but not retreating. They are traveling, supporting their families, and continuing to participate actively in both the economy and the markets. They are not sitting on their wealth. They are putting it to work.
A Historical Miscalculation
There’s an important irony worth remembering. In the 1970s, many economists believed baby boomers would eventually become a long-term headwind for the markets. The theory was simple: as they aged and began drawing down assets, they would create sustained selling pressure and weaken market returns. Another of many myths born out of the narratives many investors often create to support fear-based (often media-induced) pessimistic expectations. What actually happened? The exact opposite. Instead of becoming a drag, baby boomers have become one of the strongest structural supports for the economy and the market. Rather than liquidating assets en masse, they’ve continued to invest, spend, and support future generations. What was once expected to be a headwind has become a powerful tailwind. As often is the case, the true outcome was not different than what many believed – it was the opposite!
"The defining characteristic about the future is that there are no facts about it."
~ Nick Murray
We are also entering into what many believe will be the largest wealth transfer in history—over $120 trillion over time. That capital will be spent, reinvested, and passed along, likely continuing to cycle through the most powerful and resilient economy in the world for decades. This creates a sustained tailwind for consumption, growth, and corporate earnings.
The Reality of Market Volatility
It’s important to be clear about one thing. Markets do not move in straight lines. They never have and they never will. Volatility is not an exception, rather it’s an expected part of the experience. Since 1980, markets have experienced average intra-year declines of roughly 15%. Bear markets—declines of 20% or more—occur periodically, often without warning. But historically, they all share one common trait: They are temporary.
Too often, investors try to use valuations, headlines, or economic forecasts to time the market. History shows this approach doesn’t work. The economy cannot be consistently predicted, and markets cannot be consistently timed. Consider this: in December 1996, Alan Greenspan warned about “irrational exuberance.” Yet what followed were three of the strongest years in market history:
1997: +33%
1998: +28%
1999: +21%
The market more than doubled after his warning. Being right on valuation does not mean being right on timing.
The simple fact is that the S & P 500 has returned roughly 10% average annual returns for the past century. In just the past 50 years or so, the market also halved, or more, three times. Equity investors, to succeed, must accept that total package or none of it at all. To get 10% we must be invested and stay invested through every ounce of every decline. This is because the economy cannot be consistently forecast nor can the markets be consistently timed.
A Structural Shift May Be Underway
We may also be living through something even larger than most investors fully appreciate. Many are calling this period the fourth industrial revolution, driven by the integration of artificial intelligence across the economy. If AI continues to increase productivity, efficiency, and profitability, it could support higher margins and sustained earnings growth. It’s entirely possible that today’s “elevated” valuations may, over time, prove to be closer to a new baseline.
Closing Thoughts
This is not a call to action. It’s a reminder. Markets rise because earnings rise. Those earnings are supported by a strong and growing economy—one fueled by unprecedented levels of wealth, sustained consumer spending, and long-term demographic trends. Markets will never move in straight lines. They never have and never will. But over time, they tend to move in the direction of earnings, productivity and human progress.
As we celebrate our nation’s 250th birthday this Fourth of July, I wish you a wonderful holiday with family and friends. More importantly, I hope this reminder helps you gain a measure of independence from one of investing’s greatest enemies: fear. Because true financial freedom isn’t freedom from volatility. It’s freedom from the fear of volatility!
