Why are shares continuing to rise? No-one knows

In a world where thousands of analysts have a new opinion on the stock market on a daily basis, only one insight counts: no-one really knows what's going to happen in the short term.

The market climbed this morning for reasons that no-one understood or had predicted.

That's how a brilliant (but fictitious) 'Wall Street Journal' article from 1998 began in the satirical magazine The Weekly Standard. Analysts at CNBC are sure it has something to do with monetary policy in Senegal, but other analysts are pointing to recent disappointing figures for tuna catches in Peru.

In 2025, something similar could be said about how the stock market is performing. Few had predicted the recent rally, and even fewer can provide a coherent explanation.

Why? Just because

The point of the 'fairest stock market commentary ever' from 1998 is clear. There's often no obvious reason why shares rise or fall in the short term, irrespective of the statements made by analysts and stock market commentators.

Of course, not all trading days are a mystery. Profit warnings from large companies, new hotbeds on the geopolitical map or excellent economic reports can push the whole market up or down at pace.

But even on days like that, the course taken by the markets can still come as a surprise. The stock market or a share may start out in the red in the morning after a poor news cycle, but things may turn around halfway through the day and it could still close with a profit. This may be due to expectations, among other factors. A company may, for instance, publish poor quarterly results, causing the share to fall immediately. An hour later, however, management may outline an optimistic outlook for the quarters ahead during a conference call, causing a sharp intraday reversal and leading to spectacular price fluctuations.

The dog and the stock market

Sometimes, things are very strange indeed. In 2007 and 2008, for example, the markets saw a few striking rallies of more than 10%, each lasting several months, just as the US housing market was in the midst of collapsing. While the economic fundamentals deteriorated, the stock market continued to climb sharply.

The renowned stock market legend André Kostolany once summarised this using the analogy of the economy being like a man walking his dog. The dog represents the stock market. Sometimes the dog lags behind, and sometimes it runs ahead. At the end of the day, they remain together on the same path, but it may look chaotic along the way.

The year of the unexpected comeback

2025 also seems to be a year that's increasingly unpredictable. Shares started 2025 strongly thanks to the Trump trade: investors anticipated a US policy that would be favourable to companies. A week after Liberation Day (the announcement of new US import tariffs), the market collapsed. Since then, however, the stock market has been trading significantly higher: the S&P 500 is trading at nearly 10% above the level seen at the start of the year, and even more than 29% above the low point seen in April (source: Bloomberg, situation as at 6 August 2025), in one of the fastest recoveries ever seen.

Today, few people seem able to explain why the markets are continuing to climb. Goldman Sachs strategist David Kostin is far from the only one who has had to drastically adjust his expectations, but his story clearly shows how hard it is to predict what the stock market will do in the short term. At the beginning of 2025, he set his price target for the S&P 500 at 6,500 before the end of the year. When the stock market fell in the first quarter, he lowered that target to 6,200. At the end of March, with fears of a recession increasing, his forecast even dropped to 5,700. However, Kostin then had to row back twice and revise his targets again: first up to 6,100, and again up to 6,600 in July.

Short term vs. long term

Nobody expects a weather reporter to know what the weather will be doing in three months' time. Nevertheless, it's quite normal on the stock market for analysts to make forecasts for the coming quarters, and for investors to pay close attention to them. In practice, experts dare to make forecasts for the coming months as a matter of course, but such forecasts prove to be wrong just as often.

A study by CXO Advisory Group looked at more than 6,500 forecasts for the S&P 500 issued by nearly 70 stock market analysts. This showed that less than half (47%) of their predictions were reliable.

In simple terms, there's too much short-term noise and emotion to make such predictions reliable. The fundamentals (corporate profits, economic growth, productivity, etc.) are the driving forces behind the market in the long term, but chaos regularly prevails in the short term.

Benjamin Graham illustrated this fact in his parable of Mr. Market, later made popular by Warren Buffett and Charlie Munger. In the short term, the stock market is a voting machine where emotions, hype and sentiment set its course. In the long term, however, the stock market is a weighing machine: ultimately, it is corporate profits, productivity and economic growth that determine how much a share is really worth. It is precisely these factors that make sure those who stay in the market for a sufficient length of time are generally rewarded with growth.

Insights for investors

The next time you hear a stock market commentator explain with confidence why the market has done something, remember that there may sometimes be no obvious reason. It therefore makes little sense to want to predict every short-term movement or to act on everything you hear. Instead, investors may be better off sticking to a few tried-and-tested principles:

• Stay invested. Try not to take any knee-jerk decisions on the market. If you're always getting in and out, you run the risk of missing out on the best recovery periods.
• Diversify. Spread your investments across different sectors and regions to make sure your portfolio can withstand a setback if one segment suffers somewhat.
• Maintain a long-term perspective. Investing is a marathon, not a sprint. Staying patient and maintaining positions on the market means interim fluctuations are usually rewarded with long-term growth.

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