There is an old saying on Wall Street that bull markets climb a wall of worry. It describes one of the most interesting features of financial markets: share prices can rise, sometimes substantially, even when the economic and political headlines seem overwhelmingly negative.
At first glance, this seems counterintuitive. Surely investors should be most enthusiastic when everything is going well? In practice, financial markets often behave quite differently.
Understanding why can help investors make sense of what has been happening in 2026, and why the apparent resilience of equity markets may be an encouraging sign for the months ahead.
The expression “wall of worry” has been part of Wall Street vocabulary for decades.
The idea is simple: bull markets rarely advance in a straight line, accompanied by universally good news. Instead, they frequently progress through periods of uncertainty, overcoming one concern after another.
The wall represents all the obstacles investors worry about: inflation, interest rates, recessions, wars, political instability and disappointing economic news.
Markets climb that wall when share prices hold up or advance despite these concerns.
Importantly, this doesn’t mean the risks are imaginary. Rather, it suggests that investors have already considered many of them when deciding what they are willing to pay for shares.
Why do markets climb the wall of worry? The answer lies in one of the most important principles of investing: stock markets look forward, not backward.
Share prices reflect investors’ expectations about the future, rather than simply the economic conditions we see today.
When investors are worried about a recession, for example, share prices may already reflect the possibility of weaker company profits. If the recession turns out to be less severe than feared, markets can rise even if economic conditions remain difficult.
In other words, the news doesn’t have to be good for share prices to rise. It simply has to be better than investors expected.
There is also a psychological explanation. When investors are nervous, many hold larger cash balances or avoid buying shares altogether. If the feared disasters fail to materialise, that money can gradually return to the stock market, supporting prices.
Paradoxically, markets can be more vulnerable when everyone is optimistic, because there may be fewer potential buyers left and little room for disappointment.
What does this tell us about 2026? Investors have had plenty to worry about this year. Geopolitical tensions, uncertainty surrounding international trade, concerns about inflation and interest rates, questions about government finances and fears about the sustainability of the artificial intelligence investment boom have all created uncertainty.
Yet equity markets have shown considerable resilience. Rather than experiencing a sustained collapse in response to these risks, major markets have spent extended periods moving sideways, absorbing negative headlines without suffering a prolonged downturn.
This is important. A market that refuses to fall despite repeated bad news may be telling us something about the underlying strength of the economy and corporate sector.
Investors are effectively testing the market’s foundations. Each new concern creates an opportunity for selling pressure, but when buyers repeatedly emerge, confidence can gradually build.
There is another reason to be encouraged by this period of relatively flat share prices: corporate earnings have continued to grow.
Over the long term, company profits are one of the most important drivers of stock market returns.
Could we see a Santa rally? As we approach the final weeks of 2026, this combination of resilient markets, continued earnings growth and improving valuations provides grounds for cautious optimism.
Typically when markets ‘climb the wall of worry’, this period is followed by a strong move up in prices. Markets have digested the bad news, but assessed that the future remains positive. This, in our view, is the likely outcome from here. With corporate profits strong and markets remaining steady during a bout of negative inflation and political news, as we emerge from this news cycle in the coming weeks and months, there is a good chance of a strong rally in stock prices.
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