Worries abound. Sentiment ain’t rosy. It’s pretty skeptical. “Yeah, but what about…?” questions from my firm’s 140,000-plus global clients arrive daily. That sweeping sample suggests you may have similar concerns. Here are the most common six I hear now — and my responses.
Yeah, but why risk stocks when T-Bills yield 5%?
This is the Numero Uno most often asked “what about” question now. After 2022’s bear market, many fear stocks’ “roller coaster,” augmented by current Treasury yields. A natural feeling—but financially hazardous.
Why? Inflation, currently at 3.7% year-over-year, erodes nearly four-fifths of the yield. And that’s before taxes if not in a tax-deferred or tax-free status. By contrast, US stocks are up over 17% in 2023 — even after recent wobbles! Inflation has averaged 3.0% annually since 1926. Meanwhile, stocks annualized 10.1%. Most folks need stocks to finance long-term goals — to outpace inflation and taxes.
Uncle Sam taxes Treasury interest as regular income. (Uncle Sam giveth, and senselessly taketh away.) High earners at high tax rates (Any semi-prosperous New Yorkers who are reading) lag inflation now with Treasuries. Capital gains with lower long-term tax rates—and the ability to manage realized gains—give stocks another big edge. Interest rates may rise. Or they could fall. If so, you would need longer-term bonds to lock in today’s rates. Relatedly, our next question wonders …
Yeah, but can’t I lock in bond rates and win off falling future long-term interest rates?
Yes, bond prices and yields move inversely, always. Hence, buying long-term bonds isn’t “risk free.” Note, in 2022 bond prices fell largely in parallel and almost as much as stocks. But if you didn’t predict in 2021 that rates would rise in 2022, how can you be so sure they fall now? If you’re wrong and long-term rates don’t fall, you’re back to Numero Uno versus stocks. Risky long-term choice.
Yeah, but won’t the “earnings recession” sink stocks?
Just the reverse! Earnings started falling in 2022, triggering “earnings recession” fears slamming stocks. But with 88% of S&P 500 firms having now reported, third quarter earnings rose 4.1% year-over-year. Only three of 11 sectors suffered sagging profits. This isn’t just cost-cutting: Sales rose, too.
Yeah, but what About Israel-Gaza?
Tragic though it is, this is much more a humanitarian concern than a market event—echoing most Middle East wars. Israel, Gaza and Lebanon total roughly 0.5% of global GDP—tiny. Middle Eastern wars always spur oil fears—initially. But major oil players aren’t involved, likely why oil prices have fallen below pre-war levels. Even if it slams Iran, rising output in North America and elsewhere will cover potential lost Iranian output.
Yeah, but aren’t consumers overindebted?
Credit card debt topping $1 trillion spurs “tapped-out consumer” fears. But “scale” it! The New York Fed’s third-quarter data show that totals just 5.3% of after-tax income, matching pre-pandemic norms and far below early-2000s highs over 8%. Delinquency rates rose but remain well below 2021 and early-2010s levels. Overall household financial health is stunningly strong. Just 1.6% of total credit is 90-plus days delinquent, barely above Q4 2022’s record low.
Yeah, but what about politics—aren’t they all just drunken captains at the ship’s helm?
Last November I showed you just why hardcore gridlock helps stocks (2022 midterm results disappointed GOP — but were good for stocks). Further: Stocks rose in 83.3% of election years since 1925. Only one election year ever (1932) declined after a negative midterm year, like 2022. That doesn’t ensure gains. But betting against it? Wise-acre-ish!
Looking broadly, my mailbag reveals one key: Greed is rare. As Warren Buffett noted, “The time to be fearful is when others are greedy.” The “Yeah Buts” bolster bullishness.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 17 countries globally.
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