The Wall of Worry

How can it be that while around half of the country apparently feels as if the wheels are about to come off the bus economically, geopolitically, socially, and politically, the stock market continues to chug along reaching new highs? It doesn’t make sense to many people, and the fear is keeping many investors on the sidelines watching instead of participating. When things seem “so bad”, how can the markets continue to ignore it all? The answer is actually contained within the question. It’s called the Wall of Worry or, as I’ll refer to it here, the WoW.

The WoW is a phenomenon where investment markets continue to gain ground despite widespread investor anxiety. And it generally occurs even while seemingly supported by numerous negative news headlines and public displays of angst, such as protesters convinced that the end is nigh. How can so many people be wrong about what’s coming? How can the markets be so blind to the “facts” of their arguments? Are professional or highly-experienced investors, supposedly the “smart” money, just part of the wool being pulled over the eyes of everyday citizen-investors? Not likely, in my opinion. But the “expert class” of investors does pay close attention when walls of worry are being built because, while not always, they signal an opportunity for investment gains.

Worry-walls can be built on single events or on multiple circumstances that go on for months or years. Recent examples include the April 2, 2025 “Tariff Day” that saw markets tumble nearly 15% and finish a 20% rout that began a month before. The fear and angst created by unproven effects of significant changes to tariff policy hangs around even today and has kept many investors parked safely in money markets waiting for some shoe to drop. Since the market’s low on April 8th, the S&P500 is up nearly 1800 points or over 35%.

The “expert class” also builds WoW and these are the ones that should command attention even as the broader investing public ignores them. The most recent examples include the 2008 financial crash where many of us in the professional investor category were screaming loudly or worrying quietly that the era of so-called “No-doc” loans and forever-higher real estate values couldn’t last. Many of us sold into the fake rally as it was happening, but an even greater number of investors ignored our advice and eagerly bought in to the notion that perpetually higher home values were the new normal. Thousands of investors paid a heavy price for ignoring the WoW created by the “smart money”.

In the aftermath, a new WoW was constructed by scorned and beaten-up investors who disbelieved that the US or the world could survive such a calamity. Many battered investors stayed out of the markets as the S&P500 rallied 257% from March 2009 to early 2017 despite numerous obstacles such as the European sovereign debt crisis, U.S. debt downgrade in 2011, government shutdowns, and even Ebola scares. There were lots of bricks in the WoW but the market kept rallying into the onslaught of continuous bad news, exemplifying the very phenomenon of the WoW.

A very simple concept to help explain why markets seem to ignore the WoW is the impact of a bubble in the market. I remember distinctly in 1999 when a client begged me to “just buy me something” because everything was going up during the dot-com era. When everyone is in the market because it keeps going up, it’s a bubble. And professionals know that bubbles eventually burst only after the market has convinced as many people as possible to get in on the game. Conversely, when there’s an investor WoW and so many are staying away out of fear, it’s not a bubble. When markets are not being driven by “Irrational Exuberance” like 1999, stocks can move higher for more fundamental economic reasons instead of simply the momentum of the crowds.

The phrase I learned nearly 40 years ago was “The market always climbs a wall of worry” and I’ve seen it many times because it’s a reflection of human nature. There’s a big difference between a WoW that offers opportunity and one on which Humpty Dumpty is teetering. Our clients pay us to know the difference.