Navigating the next super cycle

SPEAKER_1 (0:01)

One of the most amazing things about health care, and there's really two spaces in the market that I can think of that are similar in this regard, healthcare and tech, is that there's always something new.

So a company simply cannot stand still. They have to innovate, they have to create new products, they have to address markets that haven't been addressed or addressed poorly.

SPEAKER_2 (0:18)

To hear more about potential impacts of GLP-1 drugs, subscribe to PGEM's The Outthinking Investor in your favourite podcast app.

Ethan Wu (0:34)

Pushkin.

Katie Martin (0:37)

This stock market miracle that we're witnessing in the US, is it for real? Are we getting a little bit overly focused on the short-term movements of a little handful of AI related stocks? How does this fit into the bigger picture?

To do that, we're going to have to look back at history a bit and figure out what the meaningful forces here really are. Today on the show, the long view, the really long view.

This is the Unhedged podcast from the Financial Times and Pushkin. I'm Katie Martin, the markets columnist here at the FT in London. And to answer these weighty questions, I have my usual sidekick, Ethan Wu in New York. Ethan, hello.

Ethan Wu (1:13)

Hey, Katie. It's interesting to not be the host chair for once.

Katie Martin (1:17)

I know. I know. Just run with it. Run with it. But also, we're doing this a little bit differently today and I've got some serious brains in the room.

Welcome to the Unhedged podcast, Peter Oppenheimer.

Peter Oppenheimer (1:27)

Thank you, Katie.

Katie Martin (1:28)

Peter is the chief global equity strategist and head of macro at Goldman Sachs, just up the road from here in London. And he's also, because he's obviously got a lot of spare time on his hands, the author of Any Happy Returns, which is a super deep dive on really long cycles in markets and economy and the grand sweep of history.

So, Peter, just to get us started, I mean, everyone talks about cycles. Why are cycles a useful way in and of themselves to think about long term investment?

Peter Oppenheimer (1:58)

Well, firstly, let me say thanks so much for having me today and to talk about this topic. I think cycles are important because you do get repeated patterns through history under really quite different circumstances. You know, if you look at economic cycles, growth, expansion and contraction, recession, these tend to repeat themselves in periods of high or low inflation and around them, you get financial market cycles as well. And so there's a great deal of reward from trying to understand where about you may be in a cycle and where a turning point may be close at hand.

And it's probably worth saying that, you know, if you look at economic cycles in terms of expansions and recessions, going back to the 1850s, there have been about 35 of them in the US as an example.

Katie Martin (2:46)

They're nothing new. I mean, you can go back thousands of years and you see these patterns of mean reversion and cyclicality, right?

Peter Oppenheimer (2:52)

There's very, very good evidence of that over time. And interestingly, there's about the same number of cycles that you get in financial markets. So if you look at equities, they've also been around 30, 35 of them over that period. And take the years since the Second World War, there have been 13 recessions in the US and about the same number of bear markets in the equity market. So there's obviously a connection between these things.

And understanding them is obviously a point of great focus for investors.

Ethan Wu (3:20)

Peter, maybe I could ask just one slightly critical question, which is, you know, the framework tends to be we're an early cycle, then we move to mid cycle and then late cycle.

And this suggests obviously you progress from one stage to the other. But it feels to me like people talk about it in a looser way that you can actually move from late cycle to mid cycle, for example. If you can move from late cycle to mid cycle, how useful is this framework really, if you know what I mean?

Peter Oppenheimer (3:44)

I think it's a very fair criticism. And the truth is, like all things, it's much easier to see in retrospect in the data where you are at any point in time than in real time.

It wasn't long ago at all, pretty much this time last year, that most commentators were convinced that we were going into recession and therefore it was end cycle. People were looking at inflation continuing to rise and alongside that interest rates. And here we are from late last year and certainly into the beginning of this year, great confidence in actually a very, very different scenario which puts you, as you say, in a different phase in the cycle. So I think understanding some of the factors that trigger these inflection points is extremely important because you can rotate back into earlier parts of a cycle. They don't always progress in quite this sort of uniform way that you would hope in an ideal world.