The simple reason sharemarkets are rising

The S&P 500 index in the US has increased for four consecutive weeks, rebounding strongly from the weakness in March.

That leaves it up 13 per cent from the recent lows, and almost three per cent above its pre-conflict peak.

You could be forgiven for wondering why the sharemarket is hitting new records, with oil prices still very high and the situation in the Middle East unresolved.

There’s never just one reason why markets move up or down, but right now I think the answer is a simple one.

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Corporate earnings are continuing to deliver.

We’re about a third of the way through the quarterly reporting season, and things are looking strong.

The aggregate earnings growth rate for the S&P 500 for the March 2026 quarter is 15.1 per cent.

That’s a stronger run-rate than analysts had been expecting, and it’ll be the sixth consecutive quarter of double-digit earnings growth.

Eight of the eleven major sectors have posted gains, led by technology, materials, financials and industrials.

The rest of this year is also expected to be strong, with analysts projecting earnings growth of 18.6 per cent for the 2026 calendar year overall.

Those are just estimates, but that’s an extremely healthy view of the outlook for the world’s largest market.

Lots of factors influence share prices, including sentiment, interest rates and geopolitics.

Over days and weeks, share prices are driven by emotion and headlines, but over years and decades earnings are what matters most.

Think of this like a rental property.

The price of that property might wobble depending on mortgage rates and buyer confidence, but over time it is anchored to the rent it generates.

When that rent is rising steadily, the property value tends to follow.

If the rent is stagnant, price gains are much harder to achieve.

The same principles apply to shares, but earnings are the rent (and those “rents” are rising).

The situation in the Middle East is a clear risk.

If it escalates and if oil supply remains disrupted, then the economic impact will become more significant.

Higher energy prices will squeeze consumers and businesses, push inflation higher and limit central banks’ flexibility.

In that scenario, earnings could come under pressure and share prices could fall.

It’s not that investors are ignoring these risks, it’s just that right now they’re reacting more to improving fundamentals than potential outcomes.

We’ll continue to see sharp moves as news breaks, and sentiment can shift quickly in an environment like this.

However, unless those developments feed through into weaker earnings, their impact might be more limited than many expect.

A sharemarket is a reflection of all its underlying businesses and those businesses are, for now, making more money.

That’s why markets are higher, and why your KiwiSaver fund has recovered most of those March losses.

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