Stock Market & Economic Commentary – July 2026

“Know how to listen, and you will profit even from those who talk badly.” Plutarch – Greek and Roman philosopher, historian, biographer.

Themes from the last 20 Years

“We priced the stars, then bought the sky, and called it wisdom on the rise. But sober minds may ask, in time, when hope became a market price?” Words adapted from a song by Tears for Fears.

Alan Greenspan, the former Chairman of the US Federal Reserve and titan of central banking, who died last month at the age of 100, belonged to an era when central bankers occupied an almost priestly place in financial markets. During his long tenure at the Fed, he was admired, at times to an excessive degree, by Wall Street, Washington and much of the financial world. Recently appointed Fed Chair Kevin Warsh has often referenced him in hearings and commentary, a testament that the thinking of his predecessor-but-three pervades his own.

Yet reputations in finance are rarely settled for long. Barely two years after Greenspan left office in 2006, the United States entered the gravest financial crisis of the post-war era. In the years that followed, his record was reassessed far more harshly, with critics arguing that the monetary and regulatory assumptions of that period had helped to lay the foundations for a dangerous boom and an even more painful bust. More recently, there have been signs of a more balanced reappraisal, one that recognises both the scale of his influence and the complexity of the period over which he presided.

That matters because Greenspan’s legacy is not simply of historical interest. It speaks directly to several of the forces that have shaped markets over the past two decades: the changing role of central banks, the relationship between low inflation and higher asset prices, the hazards of easy money, the difficulty of identifying bubbles in real time, and the tendency of investors to place excessive faith in institutions and individuals. These are not old questions. They are very much alive today.

Greenspan had an extremely specific way with words. “Since I became a central banker, I have learned to mumble with great incoherence”, goes one much-repeated quote. But his most famous remark came in December 1996, when he asked whether “irrational exuberance” had unduly escalated asset values. It is remembered as a simple warning that markets had become dangerously overvalued. Or in the adapted words from the Tears for Fears song, the moment when rising prices cease to reflect sober judgement and begin instead to capitalise hope itself.

In fact, the argument was more subtle. Greenspan was reflecting on the proposition that low inflation reduces uncertainty, lowers risk premia, and can therefore justify higher equity valuations. His question was not whether markets should rise in such an environment, but whether sound logic, carried too far, might eventually become dangerous.

That question now looks even more relevant than it did at the time. When Greenspan gave that speech, the S&P 500 stood at 744. Today it is ten times that level. More importantly, the market did not suffer a meaningful correction until some years later. That remains one of the enduring lessons of modern investing. Valuation matters but rarely works to a convenient timetable. Markets can remain expensive, and become more expensive, long after thoughtful observers begin to question the underlying assumptions.

From Alan Greenspan’s era of monetary mystique to today’s uneasy mix of elevated valuations, artificial intelligence, and geopolitical strain, markets have travelled through boom, crisis, rescue, recovery, and renewed speculation.

Over the past two decades, the language of the markets may have changed, but the underlying questions have been surprisingly constant. How much does liquidity matter? When do valuation disciplines reassert themselves? Can central banks contain instability without encouraging more of it? To what extent does each new era simply dress old investment truths in a new language? And does human behaviour matter more than fashion would have us believe?

These then are the themes of the last 20 years since Greenspan retired in January 2006.

1. The age of central banks

If one had to identify the single most important market force of the past 20 years, central bank policy would have a strong claim. For long stretches, asset prices were shaped not only by earnings and economic growth, but by the price of money itself. When cash yields are negligible and bond yields compressed, investors are pushed further out along the risk curve. That helps explain why valuations have often remained richer for longer than many considered reasonable.

This matters because markets have not merely reflected economic conditions. At important moments they have also reflected policy intervention, policy reassurance and, at times, the expectation that monetary authorities would step in if conditions deteriorated sharply. That support has never been costless. It has reduced some risks, while encouraging others. But it has plainly mattered.

The implication is straightforward. Investors who treated central bank policy as a background condition often underestimated its influence. Investors who assumed policy support could continue indefinitely have, more recently, had to adjust to a less forgiving environment.

2. Valuation matters, but seldom on command

One of the more frustrating truths in investing is that valuations can be right in principle and unhelpful in timing. It was possible to think markets were expensive in the late stages of earlier bull runs and still be premature. It has been possible to question low bond yields, elevated technology valuations, or narrow market leadership, and still watch those trends extend much further than seemed sensible.

This matters because many investment errors are behavioural rather than analytical. Investors abandon sound judgement not because the analysis is wrong, but because the market refuses to validate it on a useful timetable. In practice, valuation is a long-term discipline, not a short-term signal. It tells us a good deal about probable future returns, but much less about what may happen in the next quarter, or even in the next few years.

Set against this, discipline becomes critical. Cheap assets can remain cheap. Expensive assets can become still more expensive. Narrative can dominate arithmetic for surprisingly extended periods. But in the end, cash flow, margin, return on capital and the price paid do still matter. They always do.

3. Liquidity delays the reckoning; it does not remove it

A further lesson of the past two decades is the power of liquidity to suspend normal market discipline for longer than many expect. Ample liquidity can support weak business models, flatter valuations, suppress volatility, and encourage leverage. It can also create the illusion that risk has diminished, when in reality it has merely been deferred.

That helps explain why market cycles are often so confusing in real time. Liquidity can keep fragile structures standing well after the foundations have weakened. It buys time. It buys confidence. It can even manufacture a period of apparent stability. But it cannot permanently protect investors from poor economics, excessive borrowing, or unrealistic expectations.

Sooner or later, the distinction between price and value reasserts itself. When it does, the adjustment can be abrupt. That is why periods of abundant liquidity should not be mistaken for proof that underlying risks have disappeared. More often, they have simply gone quiet.

4. Technology changes quickly; human behaviour does not

Every market cycle arrives wrapped in the language of novelty. Over the past 20 years investors have moved from housing finance to social media, from smartphones to cloud computing, from electric vehicles to artificial intelligence. Each wave has brought genuine change, and in some cases, genuine wealth creation.

Yet the human response has been strikingly familiar. Hope becomes conviction. Conviction becomes extrapolation. Extrapolation becomes excess. Investors begin by valuing what a business is, and end by valuing what they imagine it may become in an ideal world. At the peak, scepticism is dismissed as backwardness and capital becomes indiscriminate.

None of this is an argument against innovation. Quite the opposite. Some technological shifts are entirely real and carry profound long-term implications for productivity, profitability, and market leadership. But even the strongest innovation does not suspend the laws of valuation. A good business can still be a poor investment if bought at the wrong price.

5. Resilience matters more than prediction

The final lesson is a humbling one. Forecasting has limits. Over the past 20 years, markets have repeatedly confounded confident predictions, about interest rates, inflation, recession, politics, or the pace of technological change. What has mattered more has been resilience: strong balance sheets, sensible diversification, valuation discipline, liquidity, and the capacity to endure uncomfortable periods without taking irreversible decisions.

This is not an argument for passivity. It is an argument for realism. Investors should have views, but they should also respect uncertainty. The future rarely arrives in quite the form expected by consensus. A portfolio built for one perfect scenario is usually a fragile one.

Final reflections

Understanding these lessons intellectually is only part of the challenge. Markets are shaped not merely by valuations, liquidity, and policy, but by the behaviour of investors themselves. The same forces that drive booms and busts also influence how we interpret risk, react to uncertainty, and remember past shocks. If the previous twenty years have taught us anything, it is that investment outcomes are often determined as much by psychology as by economics.

The future will present new opportunities, new risks, and new narratives, but the investor’s task stays the same: to exercise sound judgement amid uncertainty, to distinguish price from value, fashion from substance, and temporary excitement from durable wealth creation. The past 20 years have offered many variations on those themes. The next 20 will certainly do the same.

As always, we thank you for your continued support and we look forward to updating you regularly throughout the rest of 2026.

Please click here to access The Clarion Investment Diary for July with full details of the Clarion Portfolio Funds including performance statistics.

Keith W Thompson

Clarion Group Chairman

July 2026

Risk Warnings

Any investment performance figures referred to relate to past performance which is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments, and the income arising from them, can go down as well as up and is not guaranteed, which means that you may not get back what you invested. Unless indicated otherwise, performance figures are stated in British Pounds. Where performance figures are stated in other currencies, changes in exchange rates may also cause an investment to fluctuate in value.

The content of this article does not constitute financial advice and you may wish to seek professional advice based on your individual circumstances before making any financial decisions.