Headlines vs reality: Why share markets go up over time

You’ll see that headline in the news, sometimes alongside stories that feel anything but positive. It can seem confusing – how can markets be reaching new highs when the world feels so uncertain? The answer lies in the reality of the bigger picture: Economies and company profits tend to grow over time.

Growth powers the market
At its core, a share market is a forward-looking machine, and investors are constantly pricing in the future profit potential of companies. When an economy expands, companies can generate more sales, stronger cashflows, and higher dividends. That growth in earnings underpins long-term increases in share prices.

Take the US for example. Its economy has grown from around US$18 trillion ten years ago to approximately US$30 trillion today*. That expansion supports higher average company earnings, which in turn helps explain why share markets reach fresh highs.

The role of innovation and productivity
Productivity gains and innovation are powerful drivers of this story. Over the last century, advances in technology and efficiency have lifted GDP per capita in developed economies. Today, emerging technologies such as artificial intelligence have the potential to unlock the next wave of growth, and markets may even price in some of that future potential before it fully arrives.

Markets don’t move in straight lines
Of course, periods of recession or slower growth often bring short-term declines. During these times, company profits come under pressure and investors adjust expectations. Yet history shows these setbacks are part of the normal economic cycle, which feed into the slow upward trend of the share markets over the long term.

Why? Policy responses from governments and central banks typically help economies recover, and markets often follow suit.

Why staying the course matters
Short-term volatility can make investing feel unpredictable, but over time, markets have the potential to deliver positive returns. The reason is simple: economies grow, companies earn more, and those profits ultimately flow through to shareholders.

The way we see it
At Milford, we believe in the power of long-term investing. Market highs should not be a cause for alarm; they’re often a reflection of stronger economies and healthier company profits. The key is staying focused on your long-term financial goals, remaining invested through cycles, and letting time work in your favour.

*Data sourced from https://data.worldbank.org/