Why has the U.S. stock market surged again to a new all-time high?

In my view, there are three main factors. First, the easing of tensions in the Middle East has fostered broad market optimism; 'TACO' (‘There Ain’t No Crash Opportunity’) has become a consensus—every sharp dip is treated as a buying opportunity. This sentiment is evident from the fact that the VIX (volatility index) has remained below 20 over recent days. Second—and most critically—is the release of corporate earnings reports en masse, with the majority significantly exceeding market expectations. As of May 5, approximately 85% of S&P 500 companies that had reported earnings beat analysts’ forecasts—far above the long-term average. Moreover, these positive results are no longer confined to AI or tech giants: profits are improving across multiple sectors, including industrials, energy, and finance. Institutions such as Morgan Stanley believe U.S. corporate earnings are undergoing a broad-based recovery. Especially notable are companies along the AI supply chain, whose revenue growth has been exceptionally strong—alleviating some market concerns about an AI bubble and reinforcing the ‘keep playing the music, keep dancing’ mentality. A prime example is Google Cloud, whose quarterly revenue surpassed $20 billion for the first time, up 63% year-on-year, while its backlog nearly doubled sequentially to a record $46.2 billion. Microsoft’s AI-related businesses posted annualized revenue growth of 123%.

What are the main drivers behind the U.S. stock market’s rise?

Money—undoubtedly—is the primary driver behind the U.S. stock market’s ascent. Following four rounds of quantitative easing (QE), the Federal Reserve’s balance sheet has expanded eightfold since 2008—a foundational factor underpinning the U.S. equity market’s upward trajectory over the past decade-plus. Beyond the stepwise expansion of base money supply, investment capacity generated through the broader socioeconomic cycle also plays a crucial role in fueling stock market growth. Driven by the development of the artificial intelligence industry, investments in U.S. equities from American households, listed corporations, and foreign assets have delivered especially direct impetus to recent market gains. After the Fed resumed interest rate hikes—its first such move in three years—base money supply has largely stabilized. Yet, as household income surpluses decline, listed companies’ capital needs rise, and economic conditions deteriorate across other advanced economies, the overall financial investment capacity generated through the economic cycle is weakening—exerting significant downward pressure on U.S. equity markets. Furthermore, ongoing U.S. Treasury issuance intensifies competition between Treasuries and equities for investment capital, further restraining equity market gains. Unless AI-driven advances soon deliver a step-change improvement in socioeconomic efficiency, the Dow Jones Industrial Average is unlikely to reclaim levels above 54,000 in the near term—even if the Fed launches another round of QE and substantially expands monetary supply. Stocks are financial instruments issued by companies to raise capital, representing claims on future earnings. Shareholders receive a proportional share of the issuing company’s operating profits based on their ownership stake. Stock prices are influenced both by internal factors—such as the issuing company’s business performance—and external factors—including financial conditions and broader socioeconomic developments. From 2007 to today, the total market value of U.S. listed equities has increased 3.5-fold, while pre-tax corporate profits have grown twofold. The faster growth in asset values relative to profits indicates that external factors have contributed substantially to U.S. equity market gains. Since 2008, the Fed has implemented four large-scale QE programs; the stepwise expansion of money supply has been the single largest external driver of U.S. equity market growth. During each QE episode, the Dow Jones Industrial Average exhibited a roughly linear correlation with the Fed’s base money supply—confirming that growth in the Fed’s monetary base served as the most direct catalyst for equity market gains. Compared to pre-2008 levels, the Fed’s liabilities have expanded more than eightfold—far outpacing the growth in U.S. equity market valuations. Although the Dow and the Fed’s monetary base showed a clear linear relationship during QE periods, the actual flow path of newly created money is indirect: Fed-issued funds enter the stock market only after circulating through the broader economy—not directly. A major source of U.S. equity investment capital is the surplus income remaining with American households and profitable institutions after consumption and debt repayment—their primary source of funds for financial investment. Beyond direct purchases, U.S. households also invest indirectly in equities via pension funds and mutual funds, among other financial instruments. With the rise of the internet, passively managed exchange-traded funds (ETFs)—offering lower fees and lower investment thresholds—are increasingly displacing mutual funds. Because ETFs tend to be more equity-focused, their growing adoption is driving relatively rapid growth in U.S. household equity investment.

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US Stocks Rise Following Strong Profit Reports from Equifax, Hasbro, and Other Major Companies

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