Fisher Investments Editorial Staff

Doubt in the Driver’s Seat

By, 10/07/2009

Story Highlights:

  • Bull markets climb a wall of worry.
  • Historically, those who brave the climb earn their keep and more. 
  •  We gather a few of today's most prominent concerns below.


Doubts drive bull markets by restraining expectations and allowing "just ok" results to positively surprise stocks. But sometimes there are so many worrisome headlines, perspective is hard won. We gather a few of the most prominent concerns below. To date, they've done little but build the +66%* wall of worry global stocks have climbed since March.

Double Dip Recession: The latest economic data hints at recovery but remains spotty. Will the recession plumb the depths again? Highly unlikely, but the recovery path doesn't much matter for the stock market. Stocks can recover in a "V" without the economy following suit. Further, growing emerging and developed foreign markets will pull the US along, not vice-versa.

Jobless Recovery: It's increasingly vogue to say the economy's on the up and up—but not really. For instance, a jobless recovery means high unemployment despite economic growth. But all recoveries are initially jobless: First there's cost-cutting, then profits, then rehiring. Unemployment (even underemployment) will remain elevated, but won't stall revival.

Dollar Decline: Folks fear an end to dollar dominance spells doom for US borrowing and long-term economic prospects. If there is a shift in the dollar's role, it will be glacial. US debt sales continue apace, and China appears to have reinstated its dollar peg. Though much derided, the US dollar remains unmatched in safety, stability, and liquidity.

Rampant Inflation: The Fed and other central banks flooded markets with liquidity to stem financial panic last fall—now folks worry they won't reverse course quick enough to prevent rampant inflation. Inflation may become a valid concern down the road, but not yet. Low capacity utilization, constrained lending, and a generally weak economy keep a lid on prices. When appropriate, central banks have many monetary tools to rein in liquidity.


Bank Failures: Banks failures continue to threaten financial markets, and a depleted FDIC will be powerless to act. True, plenty of banks are failing—likely more will. But the FDIC won't run out of cash. And banks fail in every downturn, especially those centered on the financial system—the recovery can survive regardless.

Looming Socialism: Congress and President Obama proposed sweeping reforms earlier this year—some worry "socialist" tendencies will slow growth. Yet typical of Democratic first years, sweeping change has given way to moderation as politicians seek reelection.        

Looming Capitalism: It's easy to blame the crisis on capitalism's failings and worry today's apathy is only planting the seeds of tomorrow's Armageddon. But capitalism is cyclical by nature. There will be another crisis (count on it), and few will predict it ahead of time. Still, capitalism's benefits outweigh the costs. As the heat of the moment cools, few will deny it.  

Protectionism: What about protectionism? Surely the destruction of a half century's free trade progress will set markets back? Sure, that would be bad, but it's highly unlikely. Free trade always loses a few proponents in a downturn. The question is to what extent it's rolled back in practice. So far, we've seen more bark than bite.

Middle East Tensions: The Iranian nuclear program has many fretting the fallout in the Middle East—not least what Israel's reaction might be. Middle Eastern strife has been a constant through bull and bear markets, and longer. Ultimately, geopolitical risks are impossible to predict, but only the most extreme (like world war) can hold markets down long term.   


Expect these concerns and variations of them to continue grabbing headlines. But remember, stocks have climbed many a wall of worry over the years—and those who brave the climb earn their keep and more.


 * Source: Bloomberg

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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