Reasons to Worry Aren't Reasons to Act

If you're not scared, you're not paying attention.

That old saying perfectly fits today's market environment. Almost anywhere you look, you'll find problems threatening to sink the bull market...

Soaring energy prices... Rising interest rates... Cracks in the AI boom... If you're looking for a reason to worry, there are plenty of opportunities.

But here's what you need to remember... Just because there's fear in the air doesn't automatically make those fears matter.

We take our cues from the market, not from the headlines. Like it or not, the trend for stocks is still moving higher. And until that changes, your best move is to ignore the worries.

Let me explain...

Today's Market Is Full of Problems

I'm an optimist by nature. And that's a useful disposition as an investor.

Stocks go up more than they go down. They have an upward bias. So asking what could go right is more helpful than asking what could go wrong. 

Still, we don't want to be blind to the genuine concerns floating around today...

First, the war in Iran continues to drag on. It doesn't seem any closer to ending. And it continues to wreak havoc in the oil markets.

Earlier this summer, we saw some relief in oil prices... for a while. By early July, West Texas Intermediate crude prices – the U.S. standard – had almost dropped back down to prewar levels, dipping below $70 a barrel. But that didn't last.

Oil pushed back above $100 a barrel last month. And it's above those levels today. That's a painful development. Gas prices are near the highest we've seen this year. Diesel prices are the highest ever.

Plus, high oil prices lead to higher inflation. It cuts into consumers' discretionary income. And overall, it sucks productivity out of the economy.

Second, interest rates have become a growing concern...

Persistent inflation has forced the Federal Reserve to start hiking short-term interest rates again. In September, we saw the first rate increase in more than three years. And more rate hikes are likely on the way.

Those are just short-term rates, though. Long-term rates are even more worrying...

The 10-year Treasury yield has increased by more than a full percentage point since late February. Now, rates are above 5% for the first time since 2007.

Higher long-term rates raise borrowing costs for businesses, which slows the economy. They can even weigh directly on the stock market because investors are more likely to choose bonds over stocks when bond yields are higher.

These are clear, worrying signs for the markets. It'd be foolish to ignore them. But we don't want to overestimate a doomsday scenario, either.

In short, if you're not worried, you're not paying attention. But being worried doesn't mean you need to act. You need to keep a cool head, especially in times like these.

By looking at the stock market, we can see that these fears might be overblown... at least for now. The S&P 500 Index is near its all-time high. The equal-weight S&P 500 – which owns stocks equally, instead of heavily weighting the largest stocks – is down just 4% from its high in August.

Last week, I showed the breakdown in market breadth. And we saw that below the surface, many stocks are suffering. But that hasn't led to an overall market breakdown.

These worries could eventually spill into a larger sell-off. But right now, investors aren't panicking... And you shouldn't, either.

The truth is that the overall trend is what really matters for future returns. When stocks are rising, they tend to keep rising. And right now, stocks are still moving higher.

So yes, you should understand the worries happening in the market today. But no, you shouldn't assume the worst and exit the market entirely.

Instead, you want to understand your risk. You want to protect yourself with stop losses. Once you've done that, stop worrying. Focus on what could go right. And don't sell until the market actually breaks down.

Good investing,

Brett Eversole