The Market Always Surmounts The Wall Of Worry
While the news screams doom and gloom, global stock markets are quietly making history. Yes, you read that right. Japan is recovering from the biggest asset bubble of my lifetime, with the Nikkei Index making 34 year highs! Add that in Europe, multiple markets, including Germany, have been making all time highs recently, yet still it feels like the networks are broadcasting a narrative that suggests against investing in the stock market.
It is not just the rest of the global markets making all time highs, the Dow Jones Industrial Average (the second oldest among U.S. market indices according to Wikipedia) made a new all time high this month while the Nasdaq 100 Index made an all time high last month. The S&P 500 is yet to make a new all time high, but the close of 4,783.83 is a weekly closing record high, so I am not going to bet against that All Time High coming some time, or multiple times this year.
If you are hearing people telling you that there are only seven stocks going up, and carrying the market, then I implore you to check for yourself. There are over 5,000 stocks listed on U.S. bourses that trade daily. If you look under the hood, you will see that as at the close on Friday 14th January 2024, 52% of them are trading above their respective 200 day Simple Moving Average price. At the end of October 2023, this ratio was only 21%.
Small caps, once vulnerable to rising rates, are bouncing back! The iShares Russell 2000 ETF is up almost 20% in just 11 weeks, despite recent jitters. The small cap companies that are still around, have survived the worst of the interest rate cycles. The Fed has categorically called the end to the rate increase cycle and the next move is expected to be a cut in rates (more than once during 2024). There is still a lot of damage to be repaired for investors in the small cap sector, as we are still 20% down from the peak in November 2021, but things are likely to get better not worse given the Fed’s policy cycle changing to lowering rates.
Inflation, despite being surprisingly higher as per the most recent release, is still trending downwards towards the Fed’s target. From a brutal 9.1% peak in June 2022, it's now at 3.4% and trending towards the Fed's target.
I am by no means oblivious to the geopolitical fears and neither is “the market”. The narrative of how this is resulting in higher oil prices and the impact of reversing the inflation trend is not what is playing out in the Crude Oil market. Since the devastating Hamas attack on Israel on October 7 2023, Israel and Hamas have been waging war for more than 100 days. Kyiv as recently as November 2023, experienced the Ukraine capital city’s worst drone attack since Russia invaded in February 2022. Yet the WTI Crude Oil price has fallen 12% from where the price closed on October 6 2023. In fact, since February 2022 when Russia invaded Ukraine, the WTI Crude Oil price is down 20%.
Remember, pessimism sells the news, and not calm optimism, and so the media thrives on negativity (because people love lapping it up). “Do your own research” is really one of the most underrated pieces of advice out there. If investing in stocks is your thing, then it's time to tune out the fear mongers and embrace the market's resilience. The "wall of worry" might be loud, but the facts speak for themselves: stocks are climbing, economies are recovering, and the future isn't as bleak as the headlines paint it.
“Wall of worry is 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.” (sourced from Investopedia)