The Wall of Worry
This year has been another wonderful year for equity investors, with most major indices around the globe posting double-digit returns. Barring a truly calamitous December, 2025 will be the third year in a row of exceptionally good returns. As we head into next year, this market will have to continue to climb the wall of worry.
The wall of worry is an old investing cliché, and it just means that markets are almost always faced with ominous signs and uncertainty and yet tend to move higher over the long haul despite these concerns. It tends to be good practice to avoid using clichés in writing (just as it is also good practice to not begin a sentence with the word “it”…), but sometimes rules can be broken. Clichés get to be clichés for a reason. In this case, climbing the wall of worry happens to be a particularly apt description of what’s been happening in markets recently.
Markets swooned in November before finishing strong into the Thanksgiving holiday and ending the month basically flat. While one month does not a trend make, we did see some weakness among mega-cap tech stocks during much of the month, while more modestly priced stocks and also stocks of smaller companies performed slightly better. During the AI-fueled tech frenzy that has driven indices higher these last two years, this has been a bit of a rarity.
This relative underperformance of the market leaders is notable, not just because it is unusual, but because it could signal a breakdown in the momentum that has enabled the Magnificent Seven and other tech darlings to defy gravity. Momentum, after all, works both ways.
Before we get accused of being Debbie Downer about the technology sector, let’s go over some facts. Big tech earnings are still incredibly strong. For example, Nvidia reported mind-boggling revenue growth for the quarter—up 62% year over year to $57 billion—beat earnings expectations and boosted revenue guidance. The stock was up 5% after the company reported, but the rally soon began to fade, and the stock has been lower or flat since it reported. There’s absolutely nothing wrong with Nvidia as a business, but it’s not necessarily easy to make money in a stock that trades at almost 40x earnings.
Again, we are not making a call that tech is rolling over—just look at Google, up another 14% in November (YTD return of almost 70%); we’re just saying that with high growth expectations come certain risks.
For a clue about what happens when momentum fades and leaves investors using such quaint tools as traditional valuation models, look no further than what’s been happening in cryptocurrency markets. It has not been pretty. Before rallying a few percentage points in recent days, Bitcoin had fallen more than 30% from its October highs. We do not have any unique knowledge about crypto; the asset class obviously benefits from increasing liquidity and rising risk tolerance in the marketplace, and it suffers when the opposite is true. Accordingly, we think it is a useful gauge of investor sentiment—of the state of the wall of worry—if nothing else.
There is plenty to worry about. High valuations will weigh on future returns in large swaths of the S&P 500, for example. Speaking of walls, the global impact of trade barriers is likely in its early stages— that’s a genuine concern. If expectations of higher consumer prices become permanent, higher interest rates will follow. Also, the labor market in the U.S. appears to be softening, another concern. However, these concerns are not secrets. We see them, and others in the marketplace see them. We believe we are well-positioned to continue to climb the wall. After all, it’s a long, long climb.
For more information, please reach out to:
M. Burke Koonce III
Investment Strategist
bkoonce@trustcompanyofthesouth.com
Daniel L. Tolomay, CFA
Chief Investment Officer
dtolomay@trustcompanyofthesouth.com
DISCLOSURES
This communication is for informational purposes only and should not be used for any other purpose, as it does not constitute a recommendation or solicitation of the purchase or sale of any security or of any investment services. Some information referenced in this memo is generated by independent, third parties that are believed but not guaranteed to be reliable. Opinions expressed herein are subject to change without notice. These materials are not intended to be tax or legal advice, and readers are encouraged to consult with their own legal, tax, and investment advisors before implementing any financial strategy.
