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Why Markets Keep Rising Despite Crises

6 min readCompound

Key takeaways

Stock markets grow over the long run because productivity, population, and corporate earnings grow — crises are merely temporary deviations along that trajectory. Understanding why is the foundation of every investor's peace of mind.

The engine of growth: productivity and earnings

Shares represent an ownership stake in real businesses. Companies sell products, pay employees, and generate profits. If profits grow over the long term — and historically they do — stock prices follow. The S&P 500 reflects the 500 largest US companies, which continuously renew themselves: weaker names drop out, stronger ones step in. Learn more about the mechanism in what is the S&P 500.

What happens during a crisis

In every crisis — 2000, 2008, 2020 — markets fall sharply in the short term. Investors panic, sell at a loss, and lock in that loss. Yet companies don't cease to exist; they adapt, become more efficient, and win new customers. The market then recovers to new highs — typically faster than the pessimists expected.

Why timing doesn't work

The biggest daily gains arrive randomly, often right after the biggest drops. Those who sell in panic and wait for the "right" moment to re-enter usually miss it. Studies repeatedly show that staying fully invested over the entire period beats the investor who tries to time the market.

Key point: The goal isn't to avoid every drawdown. The goal is to stay invested long enough for compounding to do its work. How compounding works explains why time in the market matters more than timing the market.

Long-term investor vs. speculator

The speculator chases short-term gains and pays the high price of uncertainty. The long-term passive investor holds an index and lets the market work for them. Why passive investing wins over the long run is covered in detail. Calm in the storm isn't naivety — it's a strategy.

FAQ

Why do markets rise when the economy is going through a crisis?

Crises are temporary. Companies adapt, the economy restarts, and the market reflects future earnings rather than present fear. Historically, every major crash has been followed by new all-time highs.

Is it enough to simply hold an ETF and wait?

In principle yes — provided we're talking about a diversified index ETF over a long horizon. The key is psychological discipline: don't sell in a downturn and don't get carried away by every boom.

How long did recoveries take after the biggest crises?

It depends on the crisis. After 2008, the S&P 500 recovery took roughly 4–5 years; after Covid, less than a year. The longer your horizon, the less entry timing matters.

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