After the 2022 bear market helped to “clean up” the financial system, investment executives maintained an upbeat outlook for equity markets, which they said could be supported by a changing macro environment.

According to Munro Partners’ chief investment officer, Nick Griffin, the outlook is “frankly quite good” for at least the next three years.

Speaking at a GSFM media briefing in Sydney last week, he observed a bear market triggered by monetary tightening, lifting interest rates from near zero to almost 5 percent, “effectively cleaning up the financial system” and paving the way for a sustained upward cycle.

"In my experience, a really simple observation -- when you purge the financial system of all its excess, which you just did in 2022, you usually have a long period of calm afterward," Griffin said.

Similar cases were observed, he specified, in the years between 2002 and 2007. after the dotcom crash and since 2009. until 2018 since the global financial crisis and remains "incredibly encouraging" that the recent cycle of rate hikes from 2022. so far it has not caused a recession. .

"Now you're in a situation where central banks have normalized interest rates, the economy hasn't collapsed, and you end up with an economy that's bouncing along the bottom." Central banks basically have 500 basis points up their sleeve to manage a very long and sustained bullish cycle from here on out,” he said.

With that, according to Griffin, the markets are at least a year into the next extended period of growth.

Some of the world's largest companies have already shown strong earnings growth during the recent downturn, reinforcing that "the stock market is not the economy," he pointed out.

A number of thematic trends helped boost earnings, such as artificial intelligence chip maker Nvidia and drug company Eli Lilly with GLP-1 agonists now approved by the FDA to treat obesity, he said, and that "very narrow" rise in earnings will expand as the macroeconomic picture changes.

"Interest rates have peaked, and from here on out, rates are either flat or down, and earnings are going to go up," Griffin said.

"Right now earnings growth is very small among the biggest companies, but eventually that will widen because at some point central banks will cut interest rates and the economy will recover."

All this strengthened the case for the next bull market cycle and saw Munro Partners "fully invested" for more than a year.

“All of our funds are up over 35 percent over the last 12 months on a current basis. That's a big number – but it's important to note that you're coming off the 2022 bottom. That's what you would expect in the first year of a bull market,” Griffin said.

"Going forward, the returns won't be as good, but they should still be positive."

GSFM investment strategist Stephen Miller also believes recent market performance is less reflective of a macro rally.

"The consensus view in early 2024 was what is commonly described as a 'Goldilocks,' a resilient economy in which inflation has declined to the point where central banks can make significant interest rate cuts," he said.

“This is a 'flawless disinflation' scenario where bond yields fall and equity markets are pushed by powerful tailwinds associated with central bank easing and falling bond yields and continued economic growth.

"Of course, Goldilocks drove the US stock markets to all-time highs. However – at least until very recently – this reflected more of a thematic and relatively narrowly based tech-focused rally than a macro rally, buoyed by flawless disinflation and accompanying central bank easing and falling bond yields.”

Looking ahead, he said it was "entirely plausible" that the thematic rally would continue, although the extent of its next run remains in dispute.

Importantly, however, with the US Federal Reserve and bond markets now better positioned on interest rate cut expectations, inflation appearing to be on a downward trend and activity growth appearing to be cooling, Miller said it was “ hard to see' macro elements that derail the current trajectory.

"In other words, 'macro' dynamics are potentially reinforcing the 'thematic' elements that drove the first-half rally in risk markets," he said.

Miller added that the macro environment is "almost incidental" to what investment managers are looking for in their respective markets ahead of the US election and a potential Trump victory.

"[The election] it might matter on the fringes, but I think there are bigger things going on, whoever the president is,” he said.