The optimists still at the bull market party

Newsletter: Unhedged

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Doom sells. Whether markets are rosy or wobbly, making predictions of impending disaster is something of a competitive sport.

Perma-bears are famous for predicting 20 of the last three recessions while pundits (and, admittedly, columnists) devote significant time and energy to warnings about stuff that can go wrong. Those of a more cheerful disposition get less of a look-in.

Right now, the list of reasons not to be cheerful is particularly nasty: inflation is defying sober expectations, and central banks know they cannot seek to puncture it without potentially torpedoing the financial stability they have worked so hard to foster since Covid-19 hit.

The price of, well, everything — equities, risky corporate bonds, cryptocurrencies, used cars — you name it, is sky-high. Supply chains are in a mess. The debt strains at Evergrande highlight the challenges to the Chinese property market, which accounts for a cool 28 per cent of the economy. Oh, and how about a poorly anticipated global energy crisis, just for good measure.

Any or all of these things could spoil the fun in risky markets that are priced for perfection and highly sensitive to a switch in tack from monetary policy. But several of them have been true for some time and have failed to leave a mark on a Teflon-coated rally in global stocks. The quarter that just ended was a little more challenging — the S&P 500 benchmark index of US stocks ended flat. But if you were lucky or clever enough to get in at the rock bottom in March last year, you would have gained around 100 per cent.

MFS Investment Management points out that this year has delivered more than 50 new equity market highs — not bad with three months still to go. We have also seen the longest positive run in shares without a pullback of more than 5 per cent since the early 1980s.

Some investors just do not get what everyone is so worried about. Alex Ely, chief investment officer for US growth equity at Macquarie Asset Management, is one of them. “We’re not cautiously optimistic,” he said. “We’re fully bullish on the equities markets.”

Might inflation throw a curveball? What about a premature tightening of policy from the Federal Reserve? How about US markets’ strong reliance on a small clique of big tech stocks? He did not bite. “You are not going to get much to worry me,” he replied.

To say this is not how most of my conversations with fund managers pan out would be an understatement. But at the heart of Ely’s apparently indomitable optimism running through the $6bn he oversees in three funds lies his strategy of hunting for disruption, the “digitalisation of everything”. That outweighs any debate about inflation and the next steps from the Fed, in his view. “Macro doesn’t matter,” he said.

Consumer technology, retail, media and other industries have already reshaped…