Looking Beyond Headlines: What Really Drives Long-Term Market Returns

One of the hardest challenges investors face is distinguishing between information that drives long-term returns and the endless stream of headlines that dominate the news cycle. Markets are constantly reacting to political developments, economic data, interest rate expectations, and geopolitical events. While these factors can influence markets for periods of time, they are rarely the driver of long-term stock market performance.

This recent chart from Goldman Sachs is a terrific visual for investors currently confused by why the market continues to hit new highs despite considerable headwinds. Since the beginning of 2025, consensus forecasts for S&P 500 earnings have increased by roughly 30%, while the market itself has risen by a similar amount. In other words, stocks have moved higher largely because the underlying businesses that comprise the market are expected to generate significantly more profit.

Over short periods, investor emotions and market narratives can cause prices to deviate from fundamentals. Over time, however, stock prices tend to follow the direction of earnings. Businesses that grow their profits create value for shareholders, and markets eventually reflect that growth.

This is why we encourage investors to look beyond the daily noise and focus on the factors that truly drive returns. Successful investing is rarely about predicting the next headline or market move. Instead, it is about maintaining a disciplined focus on the long-term earnings power of the companies in which we invest.

Our one devil’s advocate note about this chart is that it only shows the path of the market and corporate earnings – with no reference to starting point or ending point valuations.  Since the market and earnings have both increased at a similar rate that means that valuations are roughly where they were in early 2025 – no cheaper, but also no more expensive.