Walls of Worry

Rocket Man, Hurricanes, New Highs and Walls of Worry

As the S&P 500 Index was marching its way to a record high for the eighth consecutive quarter, hurricanes devastated coastlines, and political saber rattling between the US and North Korea became the “wall of worry” that all Bull Markets inevitably climb.

Hurricanes Harvey, Irma and Maria battered the US and Puerto Rico while Donald Trump, never at a loss for words, took center stage at the United Nations labeling North Korean dictator, Kim Jong Un as the “Rocket Man.”

Bull markets climb a wall of worry and there seems to be a surplus of worry for investors of late. The devastating weather left hundreds of thousands homeless while the threat of war with a rogue nation in possession of nuclear weapons was no match for the economic fundamentals driving stock prices across the globe.

As investors, we find ourselves in the midst of a synchronized global expansion, creating a strong tailwind for earnings. But earnings aren’t the whole picture; interest rates remain near historic lows, and the Federal Reserve continues signaling that any rate hikes will likely come at a gradual pace.

Hurricanes require water, wind and low pressure to grow and expand, Bull markets, on the other hand, need corporate profits, economic growth, and favorable interest rates. Hurricanes and Bull Markets are hard to predict, especially over the short run. The forces of nature and the forces within economies are, at times, equally mysterious and unpredictable.

Short-term economic data is taking a hit from recent storms. Longer term, it’s not implausible that the resulting increase in construction and reduction in unemployment in the affected areas will net to a positive economic impact.

While North Korea’s quest for an ICBM that can strike the U.S. is unsettling, investors seem to be the pricing-in ongoing unpredictability of the rogue regime. More importantly—speaking strictly from an investment perspective—global investors are signaling confidence in the economic cycle for the foreseeable future.

While we should all be perpetually prepared for the troubling news, this aging Bull Market continues to climb the proverbial wall of worry. Earnings continue to rise, rates remain low and investors across the globe continue voting with fresh capital and higher stock prices.

“And I think it’s gonna be a long long time
‘Till touch down brings me round again to find
I’m not the man they think I am at home
Oh no no no I’m a rocket man
Rocket man burning out his fuse up here alone”  – Elton John