I think it’s a result of the concentration of wealth.
Lots of wealthy people invest their capital and live off 2-3%, while the portfolio is expected to average 7-11%. They choose this distribution strategy because they are trying to avoid a worst case scenario where they run out of money. The median return from this strategy is that their portfolio grows substantially. This growth of their portfolios is causing a concentration of wealth in the hands of the rich.
Now anywhere that is a good place to park money is shooting up in value. This includes stocks, real estate, gold and crypto.
My model predicts that everything investible will go up in value much faster than inflation.
The passive investment argument doesn’t explain why crypto and real estate are increasing in value. Most passive investors are holding stock and bond indexes.
Neither model can explain why bonds have crashed in value. Both models predict that bonds should be rocketing up like everything else.
Real estate is partially explained by what you wrote. Wealth concentration passive investment. California is (19%) passive investment real estate, Hawaii (40%), Alaska (35%), Vermont (31%), West Virginia (30%), and Wyoming (30%). It's just wealthy people passive.
Bond's don't go up fast enough to keep up with the S&P, and especially the top 7. Buying a few percent of every S&P is better than buying bonds. 1Y is 19.8%. Bonds are 4.2% (Hitchhiker joke). 5Y is ~13.5% Until 2022 bonds were less than 2%.
They also look flat when you look at a line chart. Doesn't matter if the flat line means you make 4% a year. It looks flat.
Also, personal view. The concentration of wealth is only part of it. Humans in most cases aren't really involved. It doesn't actually have that much to do with "human" fundamentals. It has to do with algorithms calculating. Even a lot of hedge funds and banks just push a button, turn on a trading algo and walk away to go have a beer. The numbers are too large, and far away to actually mean much. Line twiddling about $200T in stocks does not actually mean much to normal humans. It's kind of that Russ Hanneman joke if you've ever seen Silicon Valley. "No. Billion not Million. B not an M. It's a 1000 of those."
The stock market situation's a bit like those auto-battlers that have taken over a lot of video gaming. "You want to actually play?" "No." "The game's going to play itself and you're not allowed to participate."
At least one popular passive investment guide, _A Random Walk Through Wall Street,_ explicitly recommends investing in a real estate fund. Or at least it did last time I looked.
I wonder if this isn't just a matter of inflation being under reported because it's an easy metric to game while revenue and profits from companies are not.
In the US the official inflation figure between 2019 and 2025 was 28%, but I feel like most people "on the ground" are seeing a much higher inflation rate in housing, food and transportation.
So the stock market is effectively a somewhat doped inflation indicator because SP500 outperforms in general.
>In the US the official inflation figure between 2019 and 2025 was 28%, but I feel like most people "on the ground" are seeing a much higher inflation rate in housing, food and transportation.
People's vibes are notoriously inaccurate. The most famous one is perceptions of crime, which (prior to covid) been dropping for decades, but you wouldn't get that impression from asking the average joe on the street. Same if you asked people basic economic figures like whether the stock market is up or down.
Jeff Bezos: "I have a saying, which is when the data and the anecdotes disagree, the anecdotes are usually right. And it doesn’t mean you just slavishly go follow the anecdotes then. It means you go examine the data because it’s usually not that the data is being miscollected, it’s usually that you’re not measuring the right thing."
Most crime statistics aren't very reliable because so many crimes aren't officially reported. The only one I really trust is the murder rate since it's still hard to hide a body. That rate was flat or declining from 1999 - 2019, then spiked back up in 2020 when many police forces kind of gave up on actually enforcing law and order.
Maybe you are right actually, I fact checked myself and seems like while there is a slight underestimate, it's still nowhere near the stock market returns (roughly 100%).
Personal theory: the rise of ETFs as a fallback means that money isn’t leaving the stock market anymore. Instead of people selling off and going to cash, they go to SPY, which doesn’t have the downward pressure on the stock market that going to cash does.
I've definitely considered liquidity & wealth inequality as reasons behind the resilience & height of the stock market, but I would never have considered the effort of a switch from active to passive brokers.
I guess short-term it means that the stock market just barrels upwards and shrugs off issues that would have resulted in market corrections.
Long-term, my guess is that the first effect of this will be on politics. The stock market is used as an indicator by politicians of consumer confidence and the more resilient the stock market is, the more willing politicians will be to play fast & loose.
All of our retirement accounts are investing in the stock market. That is why it's untouchable. Where else would our retirement accounts put their money?
While people are retired, they take money from contributors. There’s nothing else going on except whole sections of the newspaper devoted to gossip about minute stock changes. The DJIA and S&P and other baskets follow 401k contributions like a random walk.
Crypto may be opening up new avenues for leveraging. So this may be like the pre 1929 & 1930s stock crashes which were partly fueled by excessive leverage and the impact of tariffs for the second crash.
And what evidence is there to support that the cause is emotional investment instead of passive, detached investment that's actually driving the majority of the market?
>the worst inflation in 40 years, and the highest interest rates in 20 years.
Caused by who again?
>The uncomfortable fact about the historic stock-market run is that no one really knows why it’s happening—or what could bring it to an end.
Why is that uncomfortable? A rising market is a good thing.
It’s uncomfortable because it challenges your assumptions. You expected the opposite to happen, and now you're experiencing cognitive dissonance. Meanwhile, those you may disagree with politically seem to understand the market better than you do.
This is a chance to reflect on your expectations, identify where your understanding was flawed, and learn from it.
I parsed it! They are saying, "you HN liberal types thought the market would go down, but it's going up. You might consider that your failed prediction demonstrates a fundamental misunderstanding of the world".
They got HN demographics wrong, plus while causality is hard, I do think "the inflation and high interest rates were caused by liberals" is a difficult claim to justify. Besides that, I do think it's an interesting take. Every failed prediction is an opportunity for reflection
I love the unshakable faith Republicans have that Republicans are better for the economy when there is so much evidence to the contrary. I suppose if you define "economy" narrowly enough it might be true.
Huh? We’re seeing all of the Democratic Party’s predictions fail to materialize and your response is that _Republicans_ aren’t accepting evidence?
Clearly the economy isn’t well understood or easily predicted, but a simplistic look at available evidence would appear to back the Republican view. What’s your interpretation of evidence that Republicans aren’t accepting?
>I love the unshakable faith Republicans have that Republicans are better for the economy when there is so much evidence to the contrary. I suppose if you define "economy" narrowly enough it might be true.
Im not from the USA and not a republican.
The point of my post that was hopefully coming through was for some self-reflection. “He who asks a question is a fool for a minute; he who does not ask is a fool for life.”
I think it’s a result of the concentration of wealth.
Lots of wealthy people invest their capital and live off 2-3%, while the portfolio is expected to average 7-11%. They choose this distribution strategy because they are trying to avoid a worst case scenario where they run out of money. The median return from this strategy is that their portfolio grows substantially. This growth of their portfolios is causing a concentration of wealth in the hands of the rich.
Now anywhere that is a good place to park money is shooting up in value. This includes stocks, real estate, gold and crypto.
My model predicts that everything investible will go up in value much faster than inflation.
The passive investment argument doesn’t explain why crypto and real estate are increasing in value. Most passive investors are holding stock and bond indexes.
Neither model can explain why bonds have crashed in value. Both models predict that bonds should be rocketing up like everything else.
Real estate is partially explained by what you wrote. Wealth concentration passive investment. California is (19%) passive investment real estate, Hawaii (40%), Alaska (35%), Vermont (31%), West Virginia (30%), and Wyoming (30%). It's just wealthy people passive.
Bond's don't go up fast enough to keep up with the S&P, and especially the top 7. Buying a few percent of every S&P is better than buying bonds. 1Y is 19.8%. Bonds are 4.2% (Hitchhiker joke). 5Y is ~13.5% Until 2022 bonds were less than 2%.
They also look flat when you look at a line chart. Doesn't matter if the flat line means you make 4% a year. It looks flat.
Also, personal view. The concentration of wealth is only part of it. Humans in most cases aren't really involved. It doesn't actually have that much to do with "human" fundamentals. It has to do with algorithms calculating. Even a lot of hedge funds and banks just push a button, turn on a trading algo and walk away to go have a beer. The numbers are too large, and far away to actually mean much. Line twiddling about $200T in stocks does not actually mean much to normal humans. It's kind of that Russ Hanneman joke if you've ever seen Silicon Valley. "No. Billion not Million. B not an M. It's a 1000 of those."
The stock market situation's a bit like those auto-battlers that have taken over a lot of video gaming. "You want to actually play?" "No." "The game's going to play itself and you're not allowed to participate."
At least one popular passive investment guide, _A Random Walk Through Wall Street,_ explicitly recommends investing in a real estate fund. Or at least it did last time I looked.
A comparison of XLRE or USRT to SPY across 5 years makes that seem like a terrible idea.
I wonder if this isn't just a matter of inflation being under reported because it's an easy metric to game while revenue and profits from companies are not.
In the US the official inflation figure between 2019 and 2025 was 28%, but I feel like most people "on the ground" are seeing a much higher inflation rate in housing, food and transportation.
So the stock market is effectively a somewhat doped inflation indicator because SP500 outperforms in general.
>In the US the official inflation figure between 2019 and 2025 was 28%, but I feel like most people "on the ground" are seeing a much higher inflation rate in housing, food and transportation.
People's vibes are notoriously inaccurate. The most famous one is perceptions of crime, which (prior to covid) been dropping for decades, but you wouldn't get that impression from asking the average joe on the street. Same if you asked people basic economic figures like whether the stock market is up or down.
Jeff Bezos: "I have a saying, which is when the data and the anecdotes disagree, the anecdotes are usually right. And it doesn’t mean you just slavishly go follow the anecdotes then. It means you go examine the data because it’s usually not that the data is being miscollected, it’s usually that you’re not measuring the right thing."
https://lexfridman.com/jeff-bezos-transcript
Most crime statistics aren't very reliable because so many crimes aren't officially reported. The only one I really trust is the murder rate since it's still hard to hide a body. That rate was flat or declining from 1999 - 2019, then spiked back up in 2020 when many police forces kind of gave up on actually enforcing law and order.
https://www.consumershield.com/articles/murder-rate-by-year
Maybe you are right actually, I fact checked myself and seems like while there is a slight underestimate, it's still nowhere near the stock market returns (roughly 100%).
Housing (34%): https://fred.stlouisfed.org/series/ASPUS New car (38%): https://caredge.com/guides/new-car-price-trends-in-2025 Food (29%): https://www.in2013dollars.com/Food-and-beverages/price-infla...
IMO, this is exactly what is happening. Near as I can tell, S&P500 is actually almost neutral if we count inflation.
Also, we’re very likely to get a replay of the late 70’s (leading to the early 80’s) soon if Trump gets what he wants with the Fed.
He wants to inflate out of this mess, and I suspect he’ll get what he wants.
The S&P has almost doubled in 5 years compared to the quoted 30% increase in prices, stock returns are far outstripping inflation.
I have not met anymore who’s grocery bill has only gone up 30% during that time.
Personal theory: the rise of ETFs as a fallback means that money isn’t leaving the stock market anymore. Instead of people selling off and going to cash, they go to SPY, which doesn’t have the downward pressure on the stock market that going to cash does.
I love The Atlantic for articles like this.
I've definitely considered liquidity & wealth inequality as reasons behind the resilience & height of the stock market, but I would never have considered the effort of a switch from active to passive brokers.
I guess short-term it means that the stock market just barrels upwards and shrugs off issues that would have resulted in market corrections.
Long-term, my guess is that the first effect of this will be on politics. The stock market is used as an indicator by politicians of consumer confidence and the more resilient the stock market is, the more willing politicians will be to play fast & loose.
> Or that theory could end up being disproved by unforeseen events. It wouldn’t be the first
I love this ending. Too many in the media are certain when no certainty is warranted.
All of our retirement accounts are investing in the stock market. That is why it's untouchable. Where else would our retirement accounts put their money?
While people are retired, they take money from contributors. There’s nothing else going on except whole sections of the newspaper devoted to gossip about minute stock changes. The DJIA and S&P and other baskets follow 401k contributions like a random walk.
Crypto may be opening up new avenues for leveraging. So this may be like the pre 1929 & 1930s stock crashes which were partly fueled by excessive leverage and the impact of tariffs for the second crash.
https://archive.ph/ZgtCJ
It knows that there are far too many powerful players in market, who are far too emotionally invested in Numbers Go Up - https://news.ycombinator.com/item?id=41423231
And what evidence is there to support that the cause is emotional investment instead of passive, detached investment that's actually driving the majority of the market?
[dead]
>the worst inflation in 40 years, and the highest interest rates in 20 years.
Caused by who again?
>The uncomfortable fact about the historic stock-market run is that no one really knows why it’s happening—or what could bring it to an end.
Why is that uncomfortable? A rising market is a good thing.
It’s uncomfortable because it challenges your assumptions. You expected the opposite to happen, and now you're experiencing cognitive dissonance. Meanwhile, those you may disagree with politically seem to understand the market better than you do.
This is a chance to reflect on your expectations, identify where your understanding was flawed, and learn from it.
[flagged]
I parsed it! They are saying, "you HN liberal types thought the market would go down, but it's going up. You might consider that your failed prediction demonstrates a fundamental misunderstanding of the world".
They got HN demographics wrong, plus while causality is hard, I do think "the inflation and high interest rates were caused by liberals" is a difficult claim to justify. Besides that, I do think it's an interesting take. Every failed prediction is an opportunity for reflection
I love the unshakable faith Republicans have that Republicans are better for the economy when there is so much evidence to the contrary. I suppose if you define "economy" narrowly enough it might be true.
Huh? We’re seeing all of the Democratic Party’s predictions fail to materialize and your response is that _Republicans_ aren’t accepting evidence?
Clearly the economy isn’t well understood or easily predicted, but a simplistic look at available evidence would appear to back the Republican view. What’s your interpretation of evidence that Republicans aren’t accepting?
>I love the unshakable faith Republicans have that Republicans are better for the economy when there is so much evidence to the contrary. I suppose if you define "economy" narrowly enough it might be true.
Im not from the USA and not a republican.
The point of my post that was hopefully coming through was for some self-reflection. “He who asks a question is a fool for a minute; he who does not ask is a fool for life.”