Is Investor’s Wall of Worry Dead?
All through the bull market for the past 2 years, there always seems to be some concern that pops up that might ruin stock prices and send the Dow Jones, S&P 500, and NASDAQ indexes plummeting.
Just as the market gains moment, some news, political decision, FED rate decision, or statistical report arises to spoil it. This and more are all implicated in investor’s wall of worry.
Clearly, given the US stock market just keeps on chugging along, over a longer term, the worries and negative news stories and events didn’t create a stock market crash. It was pure psychology and unfounded. We wonder if it was entirely manufactured by a fear-mongering segment in government, banks and big business. Of course, on the real side of fear would have been the re-election of Kamala Harris as US President. Not only was that option anti-business but could have resulted in the failure of the US government financially.
Those fears would cause Americans to pull back from a pro-US government and perhaps vote to keep the status quo.
And at this point, given the expectation of lower interest rates, and a new incoming government dubbed Trump 2.0, it’s hard to find any reason why the market won’t soar further. Experts have adjusted their predictions far beyond their pessimistic forecasts one year ago.
This chart from Google Finance shows a strong upward trend for the last 5 years, a trend that actually goes back to 2012. Theoretically, this bull market should have ended a long time ago. Of course, the Covid pandemic delayed its natural course. But there’s something else — the destruction of the Pro-China/woke movement.
The weight on the private sector made it ultralean and efficient, and finally now, there are trade and investment barriers for Communist China. US companies will be funded, protected and supported, and there is a lot of money in money markets that could move over to equities, to power this new era for America. And global investors seeing this, will likely move trillions into US equities to get the best returns for the next 5 years.
What is the Wall of Worry?
We’ve all heard it used by stock market pundits and analysts, but few really know what it is.
The “wall of worry” is a term used in stock market investing to describe the phenomenon where stock prices continue to rise despite widespread concerns or negative news about the economy, politics, or other external factors.
Investors may remain cautious due to these uncertainties. Then the market climbs the “wall of worry” with buyers focused on long-term fundamentals, justifying optimism about future growth, or an eventual resolution of the concerns. Common issues comprising the “wall of worry” include:
- Economic slowdowns or recessions
- out of control US debt, trade deficits, and payment defaults
- US economic policies on taxes, spending and regulation
- Tariffs and trade wars
- Rising interest rates
- Geopolitical tensions and war threats
- Inflation
- Corporate earnings concerns
It’s like they pull them out of a hat whenever needed. The media is particularly fast to jump on these fanning the doubt, to make investors act against the market momentum. Of course, if equities markets falter, government bonds and treasury bills look more attractive, and progress is deterred (deregulation, cryptocurrency).
Market Meltup – Suggesting the Market Will Fail
When a bull market continues, it may progress into a market meltup as its final stage of its lifecycle. But is the buzzword just another attack on healthy market growth or is it truly indicative of overheating and a potential crash?
Even cyclical theories seem relevant, these are unusual political and economic times. The US has been in the doldrums ever since free trade began. Could we instead see what’s happening as the beginning of a new economic cycle?
A market melt-up can happen. It describes a rapid and often unsustainable surge in stock prices, typically driven by a rush of investor euphoric enthusiasm or fear of missing out (FOMO), rather than improvements in market fundamentals or economic conditions. It is characterized by:
- Speculative buying: Investors aggressively purchase stocks out of optimism or a desire to capitalize on rising prices.
- High valuation levels: Stock prices can reach levels that are significantly higher than historical norms or justified by earnings.
- Emotional drivers: Fear of missing future gains (FOMO) or a late-cycle euphoria can fuel the melt-up, even if economic indicators or fundamentals suggest caution.
- Statistical indicators: often occurring in the later stages of a bull market and can precede a market correction or crash, as prices eventually return to align with economic realities.
- Economic indicators: leading or lagging economic indicators may predict the direction of the stock market and overall health of the U.S. economy.
Trump 2.0 Economy
As I mentioned in a previous post on what is the Trump Trade and the Trump 2.0 economic agenda, it appears to resolve many of the ailments that causing business so much trouble.
The forecasts for the 5 year stock market are very positive. Ed Yardeni believes the US economy and markets will roar into 2030. Tom Lee the Internet’s favorite market forecaster sees the same impressive growth in stock prices, driven by AI, demographics, deregulation, lower interest rates, and lower taxes. The weight investors have been feeling for decades is about to be lifted. It’s reflected in the indexes strong performance this year. Investors sensed it was going to be this way.
Yardeni says the “animal spirits” being set loose by the economic policies of President-elect Donald Trump will send the S&P 500 to 10,000 by the end of the decade. His forecast is rosy for a 7,000 height at end of 2025 and 8,000 at end of 2026. And these are two key years in the new era Trump 2.0 period.
Conversely, what is to say that the global economy won’t thrive over the next 5 years? Countries may adjust to the US desire to heal and protect its economy and play fair in international trade. And many more of the impediments on the US will be lifted thus giving the US more freedom to export to the world.
This potential for US exports is underplayed in the Democrat media channels. With its leadership in AI, low energy costs, and freedom from regulations, what is preventing the US from outperforming all other nations including China?
At this point, as we enter 2025 with President Trump in charge, the wall of worry is losing bricks.
See more on the US stock market and forecasts for the 3 month to 6 month outlooks.
