Stocks Continue to Climb a Wall of Worry

Despite record high oil prices, instability in the Middle East, and economic uncertainty in the U.S., stocks have managed to continue their ascent. While many attribute the rise to improved earnings and an increase in merger activity, there are other, more indirect reasons that equities are defying Wall Street’s expectations for a sizable drop in valuation.

Consider the re-normalization of the yield curve, for example. As the difference between long- and short-term term rates continues to expand, investors are once more being compensated for taking risks in the bond market. This trading indicates that portfolio managers believe that recession is a less likely scenario, and that current economic growth is an ample reason to continue buying stocks.

And as stocks have continued rising, a growing number of stock options granted by companies are now “in the money.” As these options are being exercised, executives have more cash to spend, which is propelling the economy even further along.