Are Investors Climbing a “Wall of Worry” About Interest Rates?

Sheaff Brock Investment Advisors | Climbing the Wall of Worry about Interest Rates | Rock Climber

Are Investors Climbing a “Wall of Worry” About Interest Rates?

“So, as has been the case during most of the bouts of nervousness in recent years, there is no shortage of things to worry about,” writes the Calafia Beach Pundit, in answer to a question about the proverbial “Wall of Worry,” admitting that every significant decline in stock prices in recent years has coincided with a spike in market nervousness. To date, however, the author points out, all the current “panic attacks” have proven to be unfounded; the economy has kept on growing at a modest pace.

The “Wall of Worry” is an informal expression used in financial jargon since the 1950s, referring to a market uptrend that occurs when there is significant uncertainly about stock price sustainability. Why is the phenomenon described as a “wall”? The financial markets have a periodic tendency to surmount a host of negative factors and keep ascending. Of course, investors always find reason to worry, and “those reasons may be legitimate or not, depending on an individual’s perception of the market and what their investment goals happen to be,” Investopedia authors explain.

The stock market’s newest ‘wall of worry’ is built on inflation and rate fears, Anora Gaudiano opines in MarketWatch. Interestingly, she observes, fears of rising inflation and higher interest rates (hence higher borrowing costs) were blamed for triggering the latest market selloff in the first place. Higher interest rates can certainly, Gaudiano points out, destabilize companies and households with high debt levels. However, as Quincy Krosby of Prudential explains, markets will be fine with higher interest rates so long as the economy is solidly expanding and companies are able to pass on the price hikes onto consumers.

“Many investors have such short memories they forget that today’s interest rates are still incredibly low,” Sheaff Brock Managing Director Dave Gilreath observes. The six-decade chart of the 10-year Treasury rate shown below makes it obvious—today’s rates are still lower than all but the most recent period. The U.S. economy did just fine when rates were even twice as high as today, Gilreath points out, adding that, “A reasonable increase in interest rates should not derail the current expansion.”

Federal Reserve Bank of St. Louis | Economic Research

Source: Federal Reserve Bank of St. Louis

There are plenty of concerns making up the “Wall of Worry” right now, but growth in the economy will be the determining factor. “If the economy continues to strengthen, that will ‘trump’ just about all the above worries,”—including the concern about rising interest rates—the pundit concludes.


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