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Climbing the Wall of Worry
Hoxton Blog • Climbing the Wall of Worry
This week delivered investors some of the best news in months and some of the most uncomfortable news in years, all within the same 48 hours. Through all of it, markets continued their climb to fresh record highs.
At first glance, that sounds contradictory. In reality, it reflects one of the oldest patterns in investing and one of the most valuable lessons a long-term investor can learn. Markets do not simply react to whether today's headlines feel good or bad.
They respond to whether the future appears more certain or less uncertain than it did before.
That distinction matters more than many people realise.
The Good News and the Bad News
The good news came from geopolitics.
The United States and Iran reached a tentative agreement to extend their ceasefire, reopen the Strait of Hormuz, and begin talks aimed at ending the conflict.
Oil prices eased on the announcement, reflecting hopes that one of the biggest geopolitical risks hanging over markets this year may be beginning to move towards de-escalation.
It is the most meaningful diplomatic progress since the conflict began.
The bad news came from inflation.
US inflation rose to its highest level in nearly three years, offering a sharp reminder that the economic effects of elevated oil prices rarely disappear quickly. Higher energy costs tend to seep into supply chains, transport, manufacturing, and, ultimately, the everyday prices paid by households and businesses alike.
The chart below tells that story more clearly than any lengthy explanation could.
Source: US Bureau of Economic Analysis. Data to April 2026.
In plain terms, inflation a year ago was running at around 2.5% and appeared to be moving steadily in the right direction. Today, it stands at 3.8%, comfortably above the Federal Reserve’s 2% target.
That has practical implications for investors.
Interest rate cuts, which many had hoped would begin to materialise this year, now look further away than they did only a few weeks ago. A month ago, almost nobody was seriously discussing the possibility that the next move in US rates might be upwards rather than downwards. Today, while still not the mainstream expectation, a small but growing number of investors are beginning to consider that possibility.
That is a meaningful shift in mood.
So Why Did Markets Go Up?
Faced with the highest inflation reading in years and fading expectations for near-term rate cuts, you might reasonably expect equity markets to have struggled.
Instead, the S&P 500 and the technology-heavy NASDAQ both closed at new record highs, while the S&P posted its longest weekly winning streak in more than two years.
This is what investors mean when they talk about markets "climbing the wall of worry".
Markets rarely move in a straight line from good news to higher prices or from bad news to lower ones. They are constantly balancing competing risks, reassessing probabilities, and attempting to look beyond the immediate headline.
This week, the single biggest source of uncertainty hanging over markets for much of the year, namely the Iran conflict and the oil shock associated with it, appeared to take a genuine step towards resolution.
For investors, that mattered.
Not because inflation suddenly became unimportant. It did not. Inflation still matters enormously because it influences interest rates, consumer spending, and corporate profitability.
But markets are forward-looking mechanisms. In this case, investors judged that a reduction in geopolitical risk carried greater significance than one month’s disappointing inflation number.
That is often how markets behave at turning points.
Markets do not rise because every piece of news becomes positive. They rise because the future begins to look incrementally more manageable, more understandable, or simply less uncertain than it did before.
A Chart We Have Shown You Before
A few weeks ago, we shared the chart below, which examines every major oil price spike over the past 40 years and tracks what happened to the US stock market in the year that followed.
Source: Exhibit A, FactSet Research Systems Inc., Standard & Poor's. Latest: 28 May 2026.
When we last highlighted this data, the current episode stood at 9.3%.
Today, that figure has risen to 12.2%.
In other words, while headlines have oscillated between inflation fears, ceasefire optimism and renewed policy uncertainty, the market has continued doing something much quieter but ultimately much more important: it has kept climbing.
The current cycle is now moving closer to the 24% average return that followed previous oil shock episodes.
That does not mean markets always rise after an oil spike, nor should historical patterns ever be treated as guarantees.
History is more nuanced than that.
In six of the seven previous cases, markets delivered positive returns in the 12 months that followed. In one case, the 2008 financial crisis, they did not.
The broader lesson, however, is not really about forecasting. It is about behaviour.
Periods of uncertainty create a powerful temptation to act. The instinct to sell during moments of maximum discomfort can feel entirely rational when headlines are dominated by conflict, inflation concerns and shifting interest rate expectations.
Historically, though, that instinct has proved, far more often than not, to be the expensive mistake.
What This Means for You
For long-term investors, this week changes remarkably little, and in many respects that is exactly the point.
Three observations stand out.
First, higher inflation is a headwind, but it is not a wall. Yes, it delays the prospect of lower interest rates and creates pressure on spending power. Yet quality businesses have navigated inflationary environments far more severe than this by adapting, repricing, and protecting profitability over time.
Second, progress with Iran is encouraging, but it remains unfinished. The agreement is tentative and not yet finalised. Geopolitics rarely follows a smooth path from negotiation to resolution.
Investors should view recent developments as a constructive step in the right direction rather than a finished outcome, and resist the temptation to trade portfolios around every daily headline.
Third, record highs are not being built on optimism alone. Corporate earnings have remained resilient, and over the long term, it is earnings growth, rather than sentiment or headlines, that ultimately drives market returns.
Weeks like this tend to test investors precisely because they contain conflicting signals. The headlines pull attention in opposite directions. Confidence one day, concern the next. Optimism in one market, caution in another.
Meanwhile, beneath all of that noise, the market continues doing what it has done through wars, recessions, inflation scares, financial crises, and countless other disruptions over the past century.
It climbs the wall of worry, one brick at a time.
If recent headlines, market volatility, or shifting expectations have raised questions about your own investment strategy, speak with your adviser or get in touch with the Hoxton Wealth team.
Long-term investing is rarely about reacting to every twist in the news cycle. More often, it is about staying focused on the plan beneath the noise. You can contact us at client.services@hoxtonwealth.com or via WhatsApp on +44 7384 100200.
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