Money Matters with Matt: What actually drives stock prices over time?

COLUMN - The S&P 500 is up almost 5% for the year. This is despite a new war, spiking oil prices, and continued geopolitical tension.

It feels surprising, but we saw something very similar last year. Tariffs were announced, markets dropped sharply, sentiment turned negative, and then everything recovered and pushed on to new highs.

So, what actually moves stock prices?

1. Earnings are the gravity of the market

Over the long run, company earnings are what really matter. Share prices can race ahead or fall behind for periods, but when you zoom out, the relationship is clear: profits grow, and prices eventually follow.

The latest earnings season (Q1 2026) showed exactly that. S&P 500 companies grew revenues by roughly 11% year-over-year, while profit growth was much stronger at around 27%.

Markets actually dipped in April largely before most results came out. That pullback was driven by worries about the Iran conflict, higher oil prices, and what might happen to company earnings. Once the actual numbers started rolling in and proved resilient, the market recovered.

2. Volatility is normal. The stories make it feel worse

Markets move up and down. That’s just what they do. What makes the moves feel alarming is the dramatic narrative that comes with them.

Whether it’s the current situation with Iran or last year’s tariff fears, the pattern is similar: sharp reactions, lots of worrying headlines, and then reality sets in. The story often turns out to be bigger than the actual impact on earnings.

3. Markets price in uncertainty fast

A lot of the volatility we see is simply the market trying to answer one question: how will this event affect future earnings?

At first, it guesses, and prices can swing sharply. Then real information arrives, especially earnings reports, and the market adjusts. Think back to Covid. Markets crashed about 30% because many feared companies would be shut down for years. When earnings recovered much faster than expected, share prices rebounded strongly.

4. Risks change over time

Not every risk carries the same weight it used to. The economy evolves.

Take oil, for example. Modern economies are far more efficient and less energy-intensive than they were decades ago. The US is now a net exporter of oil. A price spike still matters, but its bite on the broader economy and company profits is much smaller than it once was.

The same principle applies to many geopolitical events – they feel significant, but their lasting effect on earnings is often limited.

5. Overconfidence is a costly mistake

There’s a famous study showing that around 80% of people believe they’re better-than-average drivers. We all like to think we’re above average. Investing is no different. Many of us believe we can read the news better than others, time the market, or spot what’s coming next.

That overconfidence usually leads to unnecessary trading and poorer outcomes.

The bottom line

There will always be noise. There will always be a new headline or dramatic story trying to grab your attention. But very few of these things actually drive long-term investment results.

If you can tune out most of the daily drama and stay focused on what really matters, particularly company earnings and the quality of the businesses you own, investing becomes simpler and far less stressful. In the end, it almost always comes back to earnings.

Matthew Matthee has a wealth management business that specialises in retirement planning and investments. He writes about financial markets, investments, and investor psychology. He holds a Masters Degree in Economics from Stellenbosch University and a Post Graduate Diploma in Financial Planning from UFS. [email protected]