Economic growth

Why Does the Stock Market Keep Going Up?

Many people were taken by surprise when the stock market reached new highs after the 2016 election, with the Dow Jones industrial average (DJIA) breaking 20,000. But the recent record highs are only the latest in a long trend of stock market growth extending back well over 100 years.

The average rate of return for the DJIA since 1896 is about 7 percent when adjusted for inflation. Looking at a broader representation of the overall stock market, the average rate of return for the Standard & Poor’s (S&P) 500 index since it’s inception in 1928 is about 10 percent per year.

Of course, if you pay attention to the stock market, you know that stocks do not move steadily up all the time. Sometimes there are sudden market declines, such as the crash of 1929 that led to the Great Depression, or the 2008 collapse that led to the Great Recession. Sometimes there are long periods of market stagnation when stock prices do not go up much at all, such as during the 1970s. But over time, the long-term trend has been that stock values keep on pushing up, even after setbacks, and routinely go on to break record highs.

What makes stock values keep going higher and higher?

Investors think stocks will go up

Investors who decide to put money into the stock market select individual stocks and stock funds based on the financial performance of the businesses in the portfolio. Ultimately, investors weigh the potential for a stock to go up versus the risk that it will go down during their investment window.

Sometimes “irrational exuberance” seems to play a big role in driving stock prices. In a hot housing market, investors will pay essentially any price to buy a property if they are confident the price will go up, even if the price is not rational. Investors sometimes buy stock for the same reason — simply because they think someone else will pay more for it when they want to sell and they don’t want to miss an opportunity to make a big gain. In some extreme…

U.S. Withdrawal From The Paris Agreement Misreads The Evolving Energy Sector

SunPower President and CEO Tom Werner participates in a panel discussion at the COP21 Conference in Paris (December 9, 2015).

Our nation’s energy sector is changing. The sustained growth of the U.S. solar industry over the past decade speaks directly to the evolution taking place. Today many traditional energy companies have embraced renewables as key to their portfolios. Such a shift is a game changer: It marks a new age of integration, one that stands to benefit every community across the country.

The announcement by the Trump administration that the United States is pulling out of the COP21 agreement might come across as a win for traditional energy sources over renewables. However, the market tells us that this simply isn’t the case. When the Paris Agreement was finalized in April 2016, companies in the U.S. quickly worked to understand core provisions and principles so that they could factor them into their long-term business plans. By removing the U.S. from the agreement, President Trump has effectively disrupted this market, which will force many to question the possibility of future economic growth across our sector. It’s just as much an economic issue, affecting all providers, as it is an environmental one.

With practically every country in the world signed onto the agreement, the U.S. is now missing a clear opportunity to stand as a leader on an issue that is just as domestic as it is global. To remain competitive with other nations, we must be a part of the infrastructure associated with the Paris Agreement. If the government doesn’t step up,…

These Cities Out-Earn Entire Countries

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Large cities, not countries are the future centres of world power. They will become islands of good governance in a world in which globalisation has eroded the nation state. That point was argued in #768, which emphasises population size and growth as yardsticks for metropolitan importance across Europe.

An even more crucial measure is economic power, expressed in GDP. By that measure, the ten richest large urban conglomerations in the world are each worth more than entire countries – including some of the world’s biggest economies.

This map compares the 2015 Gross Domestic Product in Purchasing Power Parity, expressed in billions of dollars, of the world’s ten richest metro areas to that of countries with a similar GDP-PPP$.

  • Tokyo, the world’s richest (as well as largest) conglomeration, has a GDP of $1.62 trillion. That is in the same league as South Korea, the world’s 14th-largest economy, with a GDP of $1.75 trillion.
  • In 2015 New York, in second place on the metro rich list, produced almost as much wealth as the entirety of Canada, the second-biggest country in the world – and without the benefit of that country’s considerable natural resources.
  • On the other U.S. coast, Los Angeles came pretty close to duplicating the Gross Domestic Product of another giant country, Australia.
  • Seoul, capital of South Korea and responsible for more than half of its GDP, on its own out-GDPs Malaysia.
  • Greater London generates almost the same economic output as the entire country of the Netherlands.
  • Paris – almost the same GDP as London – easily outperforms South Africa, one of the top three economies of its continent.
  • Shanghai, virtually on a par with Paris, is a mightier economic power than the Philippines.
  • Moscow is a bigger economic hub that the United Arab Emirates.
  • Osaka produces more than a fifth more wealth that Switzerland.
  • And Beijing‘s GDP is more than…