If you ignore the occasional surprises that roil the market and focus instead on its long-term behavior, you’ll find corporate earnings and interest rates are key.
Over periods of five years or more, stock prices closely track corporate profit growth. The longer the stretch of time, the more important earnings trends are. Since World War II, an estimated 90% of the stock market’s gain has come from profit growth. As profits add up over time, the scale tips and prices rise, regardless of how investors have voted in any given day, month or year.
In the short run, changes in interest rates can be more important than earnings. When rates go up, all other things being equal, investors tend to pull money out of stocks and put it into bonds and other fixed-income investments because the returns there are so attractive.
That brings stock prices down, and sends bond prices higher. On the other hand, when interest rates come down again, then investors tend to shift money into stocks, reversing the previous trend.