Three reasons why markets have advanced despite worries

A prominent television host recently asked me whether this is an Alfred E. Neumann market. The reference, of course, was to the Mad Magazine character and his famous line, “What, me worry?” It’s a fair question given the market’s continued advance in the face of what seems like a steady stream of concerns. My answer was yes, though with an important qualification.

It’s not as if there’s nothing to worry about. There’s always something to worry about. Currently, the geopolitical backdrop remains unsettled, with tensions in Iran shifting in and out of focus. In the UK, bond yields have moved higher as investors assess whether a potential political shift could bring back echoes of the sharp market dislocation seen during the brief Liz Truss era.¹ In Japan, policymakers have stepped in to support the yen, while also preparing markets for the likelihood of additional rate hikes.² Each of these developments can carry implications for global liquidity, currencies, and risk sentiment.

Yet markets have largely taken these issues in stride.³ That doesn’t mean investors are blind to risks or behaving with indifference. Instead, it suggests that the fundamental backdrop has continued to provide a strong enough foundation to help offset these concerns. When stepping back from the daily flow of headlines, the bigger picture still looks supportive for stocks, in my view.

Three factors supporting markets

First, there remains a meaningful amount of fiscal support in the global system.⁴ Governments across most major economies continued to spend, whether through industrial policy, infrastructure investment, or defense outlays. That spending often finds its way into corporate revenues and can support broader economic activity.

Second, corporate earnings have been consistently strong. Companies in the S&P 500 Index have now delivered double-digit earnings growth for six consecutive quarters.⁵ Importantly, the strength has been broad-based, with nine of 11 sectors exceeding expectations in the most recent reporting period.⁶ This isn’t a narrow story driven by just a handful of industries. Many analysts also continue to expect another quarter of double-digit growth ahead and have raised expectations for the full year.⁷

Third, the US economy has continued to show resilience. Last week’s employment report marked the second consecutive reading that can be characterized as solid.⁸ Job growth has remained healthy enough to support income and spending, in my view, but not so strong to reignite inflation concerns. For now, it appears to point to a labor market that’s stable and an economy that’s still expanding at a reasonable pace.

Taken together, these factors help explain why markets have been able to move higher even in the presence of ongoing risks. It’s not that investors are asking “What, me worry?” in a carefree or dismissive way. Instead, many appear to be weighing the balance of evidence and concluding that the positives still have the upper hand.

So, while there’s no shortage of reasons to be cautious, there’s also a rationale for why markets continue to advance. It appears to be a market defined by complacency. One that’s navigating uncertainty while still benefiting from solid corporate performance and a durable economic backdrop.