I don’t know the full answer to why stocks go up, but I have a partial answer based on risk. Imagine there are only 2 products available in the market:
(1) A US government bond that pays $100 in 1 year.
(2) Ownership in a company that will dissolve in 1 year, and at the end either return to the owner $95 or $105 with equal probability.
Note that both have the same expected return in 1 year, $100. But people will prefer to buy the first product compared to the second one, since the first one is risk free. Say the current 1-year interest rate for risk free returns is 1%, then people will pay $99 for the first product. But since the second product is less desirable, they might only pay $98 for it. So the second product has greater expected profit, since you paid $98 for $100 of expected returns. If you only invest in products like (2), then in the long run you’ll make more money in expectation compared to investing in risk-free assets like (1).
I don’t know the full answer to why stocks go up, but I have a partial answer based on risk. Imagine there are only 2 products available in the market:
(1) A US government bond that pays $100 in 1 year.
(2) Ownership in a company that will dissolve in 1 year, and at the end either return to the owner $95 or $105 with equal probability.
Note that both have the same expected return in 1 year, $100. But people will prefer to buy the first product compared to the second one, since the first one is risk free. Say the current 1-year interest rate for risk free returns is 1%, then people will pay $99 for the first product. But since the second product is less desirable, they might only pay $98 for it. So the second product has greater expected profit, since you paid $98 for $100 of expected returns. If you only invest in products like (2), then in the long run you’ll make more money in expectation compared to investing in risk-free assets like (1).