Is the Wall of Worry About to Collapse?
Why stocks, bonds, oil, and private credit are now marching to the same scary drumbeat—and what investors should watch next.
We know that fear trumps hope. That’s why hope-based rallies grind higher slowly, but when fear takes control, prices can collapse quickly. It’s why bull markets tend to last a long time—and bear markets, once they arrive, often feel sudden and brutal.
For two solid years, investors kept climbing. Every time a new scare appeared—inflation, interest rates, war, political chaos, a growing debt pile hidden from sight—the market shrugged and kept moving higher. A small group of big tech and AI names led the charge, and fear kept losing.
Now, fear is winning.
Everything that got pushed aside has come back at once, and markets are paying for it. This isn’t panic without reason. It’s a logical pile-up of real concerns—about growth, inflation, war, debt, and sky-high valuations—all hitting the same crowded trades at the same time.
Why Are Markets Falling Now?
On the surface, the reasons are familiar: fresh inflation worries, doubts about the AI trade, and escalating tensions in the Middle East pushing oil prices higher. But the real driver runs deeper. Everyone was standing on the same side of the boat.
Three forces collided.
First, the AI trade cracked. For more than a year, a handful of mega-cap tech companies drove nearly all of the market’s gains. Investors weren’t just buying earnings—they were buying a story. The idea was that AI would justify almost any price because it would change everything. But when doubts crept in—about costs, power demands, regulation, or the basic question of who actually profits from AI—those leaders became vulnerable fast. When the generals fall, the troops don’t hold the line.
Second, inflation won’t go away. After a period of improvement, the data stopped cooperating. Sticky services costs, slow-moving housing expenses, and the threat of rising energy prices have kept the “higher for longer” interest rate story alive. That’s a direct hit on assets that depend on low rates—long-duration growth stocks, cash-burning tech names, and heavily financed AI infrastructure.
Third, the wall of worry got too tall. For months, we heard the market was “climbing a wall of worry”—meaning investors kept buying despite the risks. But here’s what that phrase misses: the wall itself kept growing. Every new concern—private credit stress, US political dysfunction, Middle East conflict, China’s slowdown—didn’t push prices down. It just raised the ceiling of anxiety sitting beneath a market still making new highs. Once something finally shook confidence in the narrow tech leadership, every worry investors had “digested” came rushing back into prices at once. Add in mechanical selling from computer-driven strategies and margin calls, and a normal correction can feel like a trap door opening.
The Hidden Risk: Shadow Banking
There’s an underappreciated factor adding to the unease, and it lives in the shadows. Over the past decade, a huge share of corporate lending moved out of regulated banks and into private credit funds—many of them tied closely to private equity firms. Banks still sit behind much of this activity through various financing arrangements, but it’s harder to see and harder to measure.
This system works beautifully when times are good. It becomes a problem when higher interest rates squeeze heavily indebted borrowers, when exit windows close and funds are forced to hold assets longer than planned, and when private portfolio values adjust more slowly than public markets—creating suspicion that losses are being stored offstage.
Regional banks can have real exposure here, both directly through fund lending and indirectly through loans tied to commercial real estate and private equity portfolio companies. Investors are connecting the dots between the 2023 regional bank scare, commercial property stress, and a maturing private credit cycle—and asking the obvious question: where are the losses hiding?
We are not in a 2008-style crisis. But the fear that there’s a slow-moving problem only partly visible in public markets adds another brick to the wall of worry every time risk assets wobble.
When Do Tech Analysts Start Getting Really Worried?
Every market cycle has a moment when the bulls start privately admitting the math no longer works. We may not be there yet, but the tripwires are now in plain sight.
Three things push tech analysts from “cautiously positive” to “genuinely concerned.”
Slowing revenue combined with rising AI spending. If growth rates decelerate just as companies are ramping up massive investments in data centers, chips, and software, free cash flow gets squeezed. The AI build-out starts to look less like a self-funding revolution and more like an expensive arms race.
Valuations that have outrun even the most optimistic scenarios. High price multiples make sense for a small, fast-growing company. They become a problem when a giant platform with slowing growth still trades as if it will compound at startup rates for another decade.
The web of interconnected risk. Cross-holdings, shared suppliers, dependence on a small number of hyperscalers, and growing geopolitical and regulatory pressure on data, chips, and cloud services all add up.
Right now, much of the analysis on AI majors describes a market in the “fragile but not yet broken” phase. That can change quickly. Sentiment can flip almost overnight from “this is the new platform for everything” to “show me the real earnings.”
Why Bonds Are Rallying Even as Yields Fall
To many investors, the bond market looks backwards right now. Why would anyone rush into bonds when yields are already dropping? Isn’t less yield a reason to avoid bonds, not buy them?
Large institutional investors are playing a different game. They treat bonds as insurance first and income second. In a risk-off environment, big asset owners care more about protecting against losses than squeezing out an extra percentage point of yield. High-quality government bonds—especially US Treasuries—are still the primary hedge against equity risk in most global portfolios. When stocks fall and volatility spikes, demand for that protection jumps, which pushes bond prices up and yields down.
There’s also a forward-looking logic at work. If investors believe a growth scare will eventually force central banks into deeper or earlier rate cuts, then buying bonds today—even at falling yields—still makes sense. The total return comes from price appreciation as yields fall further, not just the current income.
And after the unusual year of 2022, when both stocks and bonds sold off together, the classic relationship has partly restored itself: equity weakness is once again being accompanied by falling long yields. That restores confidence in balanced portfolios and pulls in additional buyers.
The honest summary: investors aren’t buying bonds because they love 4% yields. They’re buying because they’re afraid of what happens if they don’t own the one major asset that tends to go up when everything else is going down.
War, Oil, and the “Bad” Supply Shock Risk
The latest Middle East escalation is more than a geopolitical headline. It’s a potential double supply shock: one through energy prices and one through global shipping.
On the oil side, any serious conflict involving Iran raises immediate questions about the Strait of Hormuz—the narrow choke point through which a large share of the world’s seaborne oil must pass. Even a partial disruption can send crude prices sharply higher, as markets price in not just the physical loss of supply but also fear and precautionary buying.
In that scenario, headline inflation spikes quickly through gasoline and heating costs. Core inflation follows more slowly, as higher transport and input costs work their way through supply chains. If households and businesses start to assume “higher energy forever,” inflation expectations can become dangerously unanchored.
Central banks preparing to ease rates would suddenly face an ugly choice: cut too fast and risk validating higher inflation, or hold firm and risk deepening a slowdown. History suggests most regional conflicts produce short, sharp oil moves that fade. The dangerous exception is when war is combined with deliberate supply weaponization—as in the 1973–74 embargo. Today’s risk isn’t a replay of the 1970s, but even a milder version is enough to re-ignite inflation anxiety.
The shipping dimension is equally serious. Attacks in the Red Sea have already forced major cargo reroutings, higher insurance costs, and longer delivery times. A broader escalation would amplify all of that. Container and bulk freight rates jump. Just-in-time supply chains that depend on precise timing stretch and then break.
Industries like autos, machinery, electronics, and consumer goods are especially exposed—when key components don’t arrive, factories don’t just become less profitable, they shut down production temporarily. That’s the textbook definition of a “bad” supply shock: less output and higher prices at the same time. For markets, it’s the worst possible mix—stagflationary pressure that raises the odds of sticky inflation and delays rate cuts while simultaneously threatening earnings growth.
Is the US Leading This Selloff—or Following?
The US still sets the global tone, but this isn’t purely an American story. The US entered 2026 with very high valuations relative to history—especially in the mega-cap tech and AI complex—plus a decade-long run of outperformance versus the rest of the world and heavy global ownership of its index leaders through ETFs, derivatives, and structured products. That made US markets both the biggest winner of the bull run and the natural focal point for the correction. When US AI leaders stumble, global indices feel it immediately.
At the same time, non-US markets had already begun to outperform in relative terms before this break. Select European and Asian markets were showing better valuations and more grounded, value-oriented leadership. In that sense, the US is simultaneously leading the narrative and lagging in relative performance.
What Should Investors Watch Next?
For all the noise, the variables that matter most over the coming weeks are straightforward.
Watch the inflation trend and energy prices: Is this a temporary oil shock, or a sustained move that keeps central banks in restrictive mode?
Watch central bank signaling: Do policymakers signal flexibility, or revert to hawkish language that locks in “higher for longer”?
Watch credit conditions: Are bank lending standards tightening sharply? Are credit spreads widening in ways that point to stress in private credit and leveraged borrowers?
Watch earnings: Do upcoming reports show that heavy AI spending is actually translating into broad, durable profit growth—or is it still mostly cost with limited near-term revenue?
Several things could stabilize or reverse the selling. Clear evidence that inflation—excluding temporary energy noise—is resuming its downward path would matter enormously. So would credible de-escalation in the Middle East that removes the tail risk of a major oil and shipping shock. Honest, credible communication from regulators and central banks about the health of banks and the private credit ecosystem would help. And earnings that validate at least a reasonable portion of today’s AI valuations could restore enough confidence to reverse the negative momentum.
In markets, fear almost always overpowers hope in the short run. That’s because fear operates through balance sheets and margin desks—it acts immediately and mechanically. Hope operates through cash flows and innovation, which take time to prove out. But the same feedback loops that intensify panic can fuel sharp recoveries once a few key uncertainties clear.
For investors, the real task right now is to separate genuine regime change from a violent, sentiment-driven reset within the same broad secular trends. That means watching oil and shipping, yes—but it also means watching whether the underlying engine of earnings and productivity is actually stalling, or simply pausing while fear has its moment.
Processing note -- I have diverted my attention this week to changing my publishing platform to billcara.ghost.io, my entire data base with a unique coding structure that works well with Power Query, and instituting a new workflow that starting after the weekend will save me a minimum 30 hours a week and enable me to produce superior reports and articles.
In the meantime, I know that many of you are very much concerned about market prices, so I stopped my other work to write this article.