You might think there is some sort of reason why stocks go up. We're told that it has to do with profits or expectations of future earnings. That's bullshit. As is usually the case, the truth is actually much stupider.

At any given time, there's a certain amount of cash, bond, and stock. Each of those needs to find an owner. In the case of cash and bonds, the value is pretty easy to calculate. However, the value of stock is almost entirely speculative. When one comes into someone's possession, the person may find their portfolio no longer has the composition of cash/bond/stock that they prefer, so they will rebalance their portfolio by selling bonds and buying stocks. Usually a computer does this.

Does the computer go to the stock factory and order the manufacture of new stock? No, the computer buys stock off a seller, and this results in bidding the price of the stock up slightly. In the long run, the prices of all stocks are bid up or down until everyone has the amount of stock, denominated in dollars, that they want.

Due to the persistent myths of 401ks, efficient market hypothesis and its inbred cousin, modern portfolio theory (this one isn't even a hypothesis?), people allocate into stock and bonds based on their age rather than any rational idea of expected returns. People also have an unusually high allocation into stocks compared to bonds in this era of low interest rates. Therefore stock prices expands to meet the required number of dollars in order for everyone to have the amount of stocks they want to own, denominated in dollars. But there is nothing written into the fabric of the universe that says those stocks need to have a valuation that makes any sense at all.

• If everyone were to desire 90% of their portfolio in stocks, the stock prices would increase until it was true.
• If everyone wanted safer assets and wanted 10% of their portfolio in stocks, the stock prices would decrease until it was true.
• If everyone wanted 100% of their portfolio in stocks, they would be infinitely valuable, and obviously the money to cash out would not exist.

There is an aggregate portfolio for all investors and the stock prices fulfill whatever the aggregate portfolio requires. Stock prices are like a gas that expands to fill the space available. Cash and bonds together are created (both as forms of debt) at a rate of about 8% per year, therefore stocks generally increase in value by a rate of about 8% per year. The space available is expanded by various forms of debt. It also expands when people want to own more stock, and shrinks when people want to own less stock.

There is definitely some point where stock valuations are objectively fake, like some sort of collective delusion of wealth, because they cannot be converted back to cash that doesn't exist. When our society celebrates record S&P500 highs, we are either celebrating the creation of more debt, or simply declaring ourselves to be even richer today than yesterday because we love the stocks. The amount of stock and its true value doesn't change as much as the amount of debt and how much people love the stocks.

Summary: The S&P 500 is a big ouija board and we just friggin love when line go up