Jeopardy Question: Climbing a Wall of Worry
And the answer is: What is the stock market doing right now.
The stock market continues to rise even though most investors are flabbergasted by it and are convinced that the next shoe is about to drop, bringing along another crash. This continued rise in the market against the belief that it should, is commonly referred to as “The wall of worry”.
Investopedia defines it as: “The financial markets’ periodic tendency to surmount a host of negative factors and keep ascending. Wall of worry is generally used in connection with the stock markets, referring to their resilience when running into a temporary stumbling block, rather than a permanent impediment to a market advance.”
Very simply, that is where we are today. However, is it warranted?
I believe there is good reason why stocks continue to rise. The two biggest being regulation and taxes. We are clearly in an era of deregulation, which is good for stocks. In addition, if we do not get a tax reform bill we know that taxes are not going up anytime soon, which is also a huge positive.
When you add that the continued improvement in global economies, with no recession in sight, strong corporate earnings, and continued strong bank lending practices, things look fairly positive for the near term.
From the looks of it, the Fed’s quantitative easing programs worked.
Longer term, I am a bit more cautious. I am very confident that we will see more volatility next year. We are well overdue for a sizable correction, the kind that scares the hell out of people. I wouldn’t be surprised if the economy slowed in the 2nd half of 2018 which would bring this correction. Therefore, investors must still invest cautiously but remain optimistic.
Making money is going to get harder, while losing it will become easier. The investment climate is certain to get a lot more difficult, which is not a big deal for someone in their 20’s and 30’s. However, retirees and those getting close will want to be much more disciplined, investing tactically (not buy and hold) and strictly adhering to their Retirement Master plan.
There will continue to be plenty of ways to make money if you know where to look!