During the 1950s, the phrase “climbing the wall of worry” was coined to de-scribe a stock market that continues to rise despite an abundance of bad news. Few expressions better capture the mood of the past quarter. The worries are mounting, to be sure — how far the market can climb amid them is a different question. Let’s look at the major concerns, place them in context, and consider why the direction could still surprise us.

Politics: Paralysis and Polarization

In the United States, our worries tend to fall into two camps: political and economic. The overlap between the two is perhaps the most unpredictable. Politically, both parties seem increasingly entrenched in their respective corners. The era of bipartisan compromise and “grand bargains” feels like a relic of another age. As of this writing, the federal government is shut down with no resolution in sight. By the time you read this, it may have reopened, but the deeper issue remains: governance itself has become a casualty of partisanship.

Economics: Navigating Between Scylla and Charybdis

Economically, the focus remains on the twin challenges of inflation and unemployment. Like Odysseus steering between the monsters Scylla and Charybdis, the Federal Reserve is attempting to chart a narrow course between these dangers. It has begun to lower interest rates to support growth and reduce unemployment while trying to avoid reigniting inflation. So far, that balancing act appears to be holding, though the lagging effects of monetary policy mean the outcome won’t be clear for months. We may see one or two additional rate cuts by year-end...unless inflation reaccelerates.

Politics Meets Economics

At the intersection of politics and economics, we are venturing into unfamiliar territory. The government is taking a more active role in shaping and steering the economy than at any point in recent decades. Broad tariffs are now in place; the most extensive since the 1930s. In addition, the government has begun negotiating revenue-sharing agreements and taking ownership stakes in select industries. While these actions have precedents in times of crisis, such as World War II and the 2008 financial crisis, their use in a non-crisis setting marks new ground. Whether this closer partnership between government and business strengthens or distorts our economy remains to be seen.

What could stop the climb?

Predicting what might halt the market’s ascent is, as Yogi Berra wryly observed, “tough to make predictions, especially about the future.” Still, a few risks stand out: a widening of the war in Ukraine, a slowdown in U.S. consumer spending, or unintended consequences from fiscal and monetary decisions. Of course, for every risk there are also potential tailwinds: innovation, productivity gains, and a resilient consumer base among them.

Staying Grounded

Given this uncertainty, we continue to recommend reviewing your risk tolerance and risk capacity to ensure your portfolio still aligns with your goals. Rebalancing back to target allocations remains a prudent step.

If you have any questions or would like to discuss how current conditions may affect your plan, we are always just a call or email away. Thank you for your continued trust.

Kevin P. Sullivan, CFA, CFP®, AIF

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Sullivan & Associates is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc., and Sullivan & Associates. Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC.

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