The S&P500 is climbing the wall of worry

and the stats to show how it'll do it

The old Wall Street adage is that “the stock market climbs a wall of worry”. Lately, the market has continued to climb the proverbial “wall of worry”. This is very bullish. There is plenty to worry about as we are starting to see GDP growth forecasts adjusted lower by both Goldman Sachs and Morgan Stanley. Inflation pressures are rising. There is mayhem going on in Afghanistan and DC. Most recently, Citi-Bank’s top strategist, Tobias Levkovich, announced in a note to clients that he made “significant” mistakes in his bearish prediction for the market. Here’s how the rest of Wall Street sees the finish to the year:

With the S&P500 sitting at 4,532 currently, more than half of the best and brightest on Wall Street predict a correction before the end of the year. The market always adjusts for maximum pain and right now, maximum pain for Wall Street is climbing the “wall of worry” higher.

The Financial Industry Regulatory Authority (FINRA) provides us with the stats to help us understand how much fuel this “wall of worry” has.

First we have margin debt. I’ve already covered margin debt in previous posts. This is what it looks like at the end of July.

It has moved aggressively down off it’s peak but it is still highly elevated compared to previous years.

FINRA also provides data for free credit balances in customers’ cash accounts. This is idle money that is sitting in brokerage accounts. It is the true definition of “cash on the sidelines”.

Currently 2021 has been on a slow downtrend after rocketing higher at the end of 2020. Money is creeping out of accounts and into the market. However, we are still way above the past 3 years’ worth of data. This is the fuel to propel the market higher for a dramatic finish to the year.

Technically, money can come from anywhere to buy stocks but free credit balances that are sitting in brokerage accounts is buying power that can very easily be moved into the market right away. There is plenty of it right now as can be seen by the chart above. This is why I’m convinced the market is going to grind higher. The “wall of worry” looks scary but with this much fuel, the grind higher will go on.