If you’ve been keeping a pulse on the market lately, you’d know that our bearish buddies are slowly turning bullish, largely thanks to the steadfast resilience of the modern consumer. Their continued confidence has been a key pillar, holding up our economy and effectively sidestepping a potential recession. But can this resilience truly last? Savita Subramanian from Bank of America sheds some light on the subject with five vital questions every investor should be mulling over. Let’s dive in!

1. The Rate Game: Can Consumers Keep Up?

The crux of the matter lies in consumer confidence. The majority of US mortgages are fixed, real wages are showing a positive uptick, and unemployment, barring specific sectors like Silicon Valley and Wall Street, has remained relatively stable. As Subramanian points out, unless there’s a large-scale job loss, consumption patterns should remain unwavering. However, a potential ‘rich cession’ among higher-income groups could pose challenges.

2. Tighter Lending Standards: Boon or Bane for Earnings?

Lending post-2008 has evolved. More credit comes from regional lenders and shadow entities than large banks. There’s a de-emphasis on borrowing to expand, which means easy credit isn’t as directly tied to earnings as before. Subramanian reassures that while some risks persist, their magnitude is quantifiable and manageable.

3. The VIX Factor: A Signal of Overconfidence?

If you’ve been eyeing the VIX, its post-COVID lows might suggest a resurging ‘buy-the-dip’ spirit. But historically, the VIX has been lower about 20% of the time, so this isn’t uncharted territory. Plus, spikes in the VIX don’t always translate to immediate volatility.

4. The Broken Links: What Could Possibly Go Wrong?

There are certainly potential pitfalls on the horizon. Keep an eye on hyper-growth investments and the so-called ‘zombie’ companies that might not weather the current rate environment. Additionally, companies forced to refinance at higher rates and those facing labor issues due to automation constraints could face headwinds.

5. The Regional Rumble: US vs. The World

US equities seem to have an edge, outperforming other developed markets since 2008. However, Subramanian hints that sprinkling in some emerging markets might be a wise move. While US stocks have their perks, including tech dominance and a reserve currency status, diversifying your portfolio could offer more balance in the long run.

In essence, while the market showcases bullish resilience, savvy investors would do well to consider these queries and strategize accordingly. Because in the world of finance, knowledge isn’t just power; it’s profit.