5 Reasons to Worry About Stocks and 5 Reasons They’re Wrong

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Rising interest rates, China's faltering recovery, and declining profit margins are risks, but the market can power through them.

Now that stocks seem stuck in a holding pattern after surging for much of the year, the chorus of voices saying they should fall is growing steadily louder. Investors are taking good news as bad news: Stock indexes fell in response to strong jobs data and awesome earnings from Nvidia.The S&P 500, down 0.3% in Thursday afternoon trading to 4450, is flat over the past two months.

Skeptics on the market cite the fact that inflation-adjusted interest rates are at 20-year highs as a reason why stock valuations are too high. But Subramanian says that they have only just come off a 5,000-year low, with borrowing until recently cheaper than in any society since ancient Mesopotamia. Even over the half-century for which data are more readily available, today’s rates remain below average.

Meanwhile, efforts by U.S. companies to bring production closer to home will keep capital spending elevated, countering another bearish talking point. “Trade and geopolitical tensions, supply chain disruption, fiscal stimulus, and decarbonization goals drive the case for reshoring,” Subramanian wrote. “Companies have been talking about reshoring, and hard data now backs it up.”

 

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