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Our views 13 December 2023

SustainAbility: Is it a bull market?

5 min read

As the saying goes, nothing makes investors bullish like rising prices (and bearish like falling prices). Prices drive narrative in our industry often to the detriment of fundamental analysis as to what is occurring in economies, industries and companies.

A bull market for equity markets is usually defined as a rise of more than 20%. Since October 2022, when fears peaked that rising energy prices and interest rates would create a recession, the S&P 500 is up nearly 30%, which certainly meets this definition.

All the great bull markets were disbelieved when they were occurring. Their origins tend to be in crescendos of bear markets and arguments of structural, negative, change occurring. These views take many years to change and often result in investors remaining on the side-lines whilst attractive opportunities pass them by.

We saw this after the great financial crisis of 2009, which sowed the seeds of one of the great bull markets that lasted until the end of 2021. Many investors could not accept a new bull market had begun, and some still don’t accept the capital appreciation seen in the 2010s, believing it was fuelled by inappropriate monetary policy, and not (as we believe) innovation and growth.

Similarly, today we find very few investors and market commentators discussing the potential for the next 10 years to be one of outsized returns. Somewhat paradoxically, this makes it more likely to happen.

The case for a structural bull market for us lies in trends occurring at the micro level. As we have written previously, atoms, bytes, and genes – which to us represents nearly all things in existence – provide a simple and powerful framework for understanding them. Atoms represent the physical world and ongoing infrastructure investment such as the Inflation Reduction Act in the US. Bytes represent digitisation and the continued prevalence of artificial intelligence (AI). Genes represent continued advances in medical science such as obesity and Alzheimer treatments.

We think investment in the physical world, as we learn to accommodate decarbonisation and exploding quantities of data, will be a feature of economies for many years to come and could offset concerns about recessions and slowing growth elsewhere.

We think digitisation and AI could result in a significant increase in productivity for the overall economy and could offset inflation concerns. Finally, we think obesity drugs – if taken appropriately – could save healthcare systems significant amounts of money from obesity-related diseases such as diabetes and heart conditions.

Putting this trifecta of positives together, we believe that we could get a prolonged period of stronger growth, lower inflation and healthier populations than is currently believed. This is what the case for a structural bull market is predicated on.

2023 was a good year, and here are some lessons from it

As if to back this thesis up, 2023 has been a good year for investors largely driven by these factors. We have had a strong year, helped by positive returns across equities and credit markets, helping recover a significant amount of the falls from 2022, when all investors bore the brunt of higher interest rate and energy costs.

Digitisation, infrastructure, and obesity medicines have all been powerful drivers of investment returns and have offset several macro concerns which investors started the year with. What else have we learnt this year?

One interesting feature of markets as a teacher of investing is they don’t come up with a lot of new content. The same lessons endure and success in this is industry depends on how quick we learn them. Some lessons have, unfortunately, to be learnt more than once before they have permanence. Here are few that markets have reminded us of this year.

First, time in the market, not timing of markets, is how to generate investment returns. The S&P 500 was up 8.9% in November. This was not forecast and not being invested during the month will have made a material difference to overall investment returns.

Second, macro forecasts can do more harm than good. Warren Buffet, of Berkshire Hathaway, famously said forecasters may tell you a great deal about the forecaster; they tell you nothing about the future. Warren claims to spend ‘no time’ thinking about macro forecasts. In our own experience and learnings, forecasts of recessions can often prove incorrect and worse than that can stop investors taking advantage of opportunities presented to them.

Finally, innovation beats commodities. Coming into this year there was a view that the cycle of innovation had ended in the technology sector, and the ongoing war in Ukraine and its impact on commodity markets by removing Russian supplies would favour natural resource stocks. This was incorrect. Commodities are just that, commodities. A homogenous metal, for example copper, is dug out from the ground and sold for a price set by the market. Sometimes that price will be good, and sometimes it will not.

Innovation solves problems which cost society money. This influence on improving societal outcomes makes innovation valuable and gives it pricing power, the opposite of commodities. The oil price is now below where it was before the tragic invasion of Ukraine, yet Microsoft’s share price is more than 20% ahead. This at a time of geopolitical tension, which should be good for commodities, and higher interest rates, which should be bad for technology stocks. 

Looking forward to 2024

As an ex-Prime Minister once reminded us, there are no disasters, only opportunities, and opportunities for new disasters. Whilst humorous, it reminds us that we can learn from all our experiences as investors, good and bad, and that we will have many more learnings in the future. Investing is not only about who makes the fewest mistakes (although that helps), but is much more about who learns from those mistakes fastest. That is a goal we can all set ourselves.

The new year will bring challenges we won’t have foreseen, but it will also bring opportunities. Our optimistic bias leads us to think more good than bad will happen in the months and years ahead, but we remain watchful of the risks that many investors see today.

This is our last blog of 2023, and we would like to thank you for your interest and support. We’ll be back in 2024!


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.