Stocks Conquer a Wall of Worries

Let’s take stock of the worries that the market has managed to move past as it managed to hit record levels recently.   

Trump’s Tariffs

One of the largest concerns investors have had this year are the tariffs President Trump has threatened to impose on foreign countries. Historically, tariffs have led to inflation and there’s always the possibility that foreign countries will retaliate with their own tariffs on US exports. Tariffs might also lead some exporters to ship their goods to other countries with lower tariffs, leaving US shelves empty. So far, none of these concerns have come to pass. Inflation has remained well behaved and store shelves are still stocked.  

Perhaps most importantly, President Trump and his team have started to strike trade deals with major exporters, like China and Vietnam. That said, there are many more countries that have not agreed to a trade deal and the market remains on edge, selling off when trade deals don’t come fast enough for investors’ liking.   

Wars Breakout 

This has not been a very peaceful time in the world with Israel fighting Gaza and Iran, the US bombing Iran’s nuclear facilities and the war between Ukraine and Russia in its third year. There is always the fear that these regional conflicts will spread, pulling in Russia or China which would then require greater US involvement. But so far, the wars have remained contained between individual players.    

Growing US Deficits 

President Trump recently signed his Big Beautiful Bill into law. The legislation increases federal government spending by more than $3 trillion over 10 years by some estimates. It extends the tax cuts from his first administration, gives newborns $1,000 to invest for their future, increases spending on defense and border security and boosts the deduction on state and local taxes from $10,000 to $40,000. The law eliminates most taxes on tips and overtime and gives seniors a tax break.  

There were some spending cuts on clean energy projects, Medicaid, and food stamps. But overall, the new law will sharply increase the federal deficit, forcing the US government to sell many more Treasury bonds. So far, the bond market is taking the ballooning deficit in stride. But this potential problem remains outstanding.  

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Lofty Valuations   

Worries are easier to overlook when the market’s valuation is low. But that wasn’t the case earlier this year, when the S&P 500’s forward P/E bounced around 22. During the spring stock market downdraft, forward multiples collapsed to roughly 18, but they’ve quickly rebounded back to the 22 area. It’s a situation to watch.  

DeepSeek Threatens US Tech   

The introduction of China’s DeepSeek AI program caused a sharp correction in US technology stocks earlier this year. China’s AI competitor reportedly uses much less electricity and was developed more quickly and inexpensively than popular US AI offerings. The stocks of US companies in AI-related areas, including chip designers, cloud providers and electricity generators, all fell sharply on the risk that China would dominate the AI trade and cause prices to tumble. Those fears have since dissipated, as investors realized that developed countries will likely shun Chinese AI offering for fear that it will offer censored content and give the Chinese government access to users’ computers and systems. After falling sharply, US technology shares came roaring back and are once again leading the market higher.  

An Eye on Earnings 

At the end of the day, the stock market can absorb a lot of bad news and continue to forge ahead as long as earnings are improving. So far, that’s the case. Companies in the S&P 500 are expected to grow their earnings by 9% this year and 14% in 2026, according to Wall Street analysts’ consensus estimates.  

The stock market will always find something to worry about, but investors should also consider positive developments that might spur stocks to rise. A strategic plan, developed in conjunction with a WHZ Strategic Wealth Advisor, can help you evaluate the risks and opportunities in the markets. To discuss our "Plan Well. Invest Well. Live Well.™" process contact us for a complimentary consultation at whzwealth.com or call (860) 928-2341.      

Authored by Senior Partner, Chief Investment Officer Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor.