Contrary to popular belief, stock prices are only affected by confidence, and more specifically, “vibes”, to only a certain extent. The primary driver of stock prices and growth in the stock market is company earnings. Despite fears of global recessions and looming conflicts, and even with rising interest rates, investors remained sure that large US companies would continue making robust profits, which means that even amidst overall fear, stocks remained immune. According to the European Central Bank, US equities have stayed strong partly because earnings expectations stayed strong, and specifically, investors did not demand large “fear premiums” to hold stocks, meaning that they did not scramble to alter their investments for a greater potential return or collateral to adjust for any greater risks imposed by volatility.

This finding is corroborated by J.P. Morgan’s mid year outlook which finds that as long as strong earnings keep coming in and the general economy keeps trending upwards, which they historically have, investor markets will remain strong, even if interest rates go higher. This begs the question of to what extent does the Fed’s interest rate related monetary policy affect investment, and the types of investments—research hints that while direct business investment can lower at times of higher rates, primarily for smaller businesses which aren’t even on the portfolios of most investors, they have little effect on investments into the stock market, and the reasoning for this could be because stocks functionally act as high risk and volatility interest bearing assets (this is not to confuse anyone that stocks are interest bearing assets, because they merely represent ownership in a company).

Another factor for why the US stock market has remained consistently strong, even at times when investors do, is because companies have mastered the art of stock buyback, which is when large companies buy back shares of their own stock. They do this to artificially reduce the number of shares out on the market, which can raise earnings per share and support growth in the stock price because at times of lower demand, the only way to keep prices stable is by lowering the supply. This fuels back into providing investors greater confidence because they know that even if some others begin pulling out, stock prices will remain stable and will not fall, protecting their investments from losing value or creating pressures to pull out.

When people talk about the US stock market, they are primarily referring to the S&P 500, which is an index tracking the share prices of 500 of the largest publicly traded companies. While all of the companies under the S&P 500 are large corporations, the index is still weighted by size, which means that the few largest companies out of all of them are the most important and drive the most amount of growth. This is sort of like the concept of winner takes all, where the largest companies make the greatest amounts of revenue and add the most value to the stock market and the overall economy. Hence, even during times of overall financial volatility, where many of the smaller or medium sized public corporations experience major losses, the largest companies who have tons of money to keep investing in persisting and therefore help maintain solve levels of growth in the stock market, prevent it from falling to low during downturns, and aid in robust recoveries.

Works Cited

Koester, Gerrit, et al. “Inflation Developments in the Euro Area and the United States.” European Central Bank, vol. 1, no. 7, 10 Jan. 2023, https://www.ecb.europa.eu/press/economic-bulletin/focus/2025/html/ecb.ebbox202408_01~d2c7bd5eba.en.html

“Mid-Year Market Outlook 2023.” JPMorgan, www.jpmorgan.com/insights/global-research/outlook/mid-year-outlook

S&P Global Public Press Release. 2025, www.spglobal.com/spdji/en/documents/index-news-and-announcements/20251218-sp-500-buyback-q3-2025.pdf

Bertaut, Carol, et al. “The International Role of the U.S. Dollar – 2025 Edition.” Federalreserve.gov, 18 July 2025, www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-2025-edition-20250718.html