One week / one topic: The adults in the room

What happened?

Last week, I had the privilege of attending a small dinner where the anchor guest was someone who’s spent 40+ years at the very top level of financial markets and policymaking.

Other attendees included senior portfolio managers from a variety of backgrounds – hedge funds, sovereign wealth funds and real money – who engaged in a lively debate.

So, what did I learn?

1. As you’d suspect, policymakers are often at a loss like the rest of us – especially when dealing with a crisis. Alas, this was not much of a new discovery for me – Remember the GFC? Or what about the decade also known as ‘March 2020’? – but still useful to hear it directly from ‘the source’.

2. The investors in the room shared most of the same concerns, both tactically – Can rate cuts be calibrated towards sticking the soft landing? Will AI deliver superior profitability soon enough? – and strategically – Will the status of the US Dollar be challenged? Are we witnessing the slow-motion beginnings of WWIII?

3. Markets remain a giant Rorschach Test: we all look at the same charts, and yet we see very different things. At the moment, however, consensus in the room was pretty solid around ‘no growth risks on the horizon’.

Regardless, global equities sit at all-time highs while the perceived gap between US stocks and the rest seems to continuously widen.

In summary – while markets are certainly aware of the risks from a tight US election (and its aftermath), tensions in the Middle East and the narrowness of the stock rally – risk assets don’t seem to be pricing this.

As a new earnings season is starting just now, will it perhaps help shed some light?