There are many contenders for the crown of the most naïve forecaster of the future but few loom larger in the public imagination than American political theorist Francis Fukuyama.
In 1992, shortly after the fall of the Berlin Wall, and as moderate leaders emerged across the rich world, he boldly forecasted ‘the end of history’.
His argument was that the time had passed when big political ideas would vie for supremacy, upending the world order regularly. Now he argued the world was settling into a gradual progression towards liberal, American-style democracy, built on moderation, democratic acceptance and ever-rising prosperity.
He now says that he is told two or three times a day on his X account that he was wrong. But in fact, the nuance of his views is a little more interesting than the original outlandish claim suggests.
His argument was not that the world would not face problems, but that it would drift towards order, democracy and growth, with many bumps along the way.
At first glance this theory looks ridiculous in the current moment. In the United States, Donald Trump has put forward a version of US political thought not seen for 100 years: abandoning internationalism, the immigration that has driven American growth for 200 years. In Europe, radical political parties on both the left and the right are in the ascendancy. Moderate governments across continental Europe looks imperilled and here in the UK the moderation of Keir Starmer has rapidly met with a deeply disapproving electorate and a surge towards more radical ideas. As far as the eventual dominance of Western American thinking goes, the growth of a one-state Chinese communist party to lead the second great superpower of the world seems to suggest otherwise.
Yet the true lesson of history when it comes to financial markets is that markets do not make progress when everything is fine and benign, it never really is. They make progress when the conditions are ‘good enough’ for ordinary people to make personal progress in their careers and businesses, so that they can push through the turbulence. Perhaps what we have learned from recent events is that however obsessed we are with the disruptive power of global leaders, the economy and stockmarkets have found a way through.
Markets do of course hate uncertainty and so classic logic suggests that they will be heavily disrupted disruptive forces. And yet, recent years tell us a different story. Had we forecast in 2020, when the streets of London were deserted from the greatest pandemic for 100 years, that the next five years would involve a major land war in Europe, the largest inflationary spike since the 1970s and the re-emergence of an unbound Donald Trump as the leader of the free world, we would have no doubt concluded that it would be a bleak period for stockmarkets.
The facts say otherwise. Over five years US shares have risen by just shy of 100% with the FTSE 100 up over 90%.
In search of an explanation for this extraordinary resilience, economists at first turned to the explanation of liquidity. After the pandemic, central banks pumped as much money into the financial system in five months as they did in the five years following the global financial crisis. This they argued, floated all boats, whatever the politicians threw at the world.
This argument begins to come apart from 2022 onwards when those same central banks, unnerved by rising inflation, begun to take liquidity out of the system. So, what has enabled the markets to keep rising despite the obvious problems?
For an explanation we must address the basic question of: what do markets really care about? The short answer to this question is earnings. They care that companies are earning cash that they can return to their investors as dividends or by buying back their shares to make the remaining shares more valuable. This is in fact all they’ve ever really cared about. Long-term studies from Robert Shiller and the CFA Institute show that in the period 1871-2014, almost all of the average 9.64% annual return of US shares has been explained by the amount companies have paid out and inflation. Just 0.27% of the return earned by shares is not contained in these two things.
Simply put, alongside the unsettling global events, the past three years have seen an explosion in company earnings, but specifically in the earnings of the largest US technology companies. Over the five years to the end of August 2025, the tech-heavy US Nasdaq index has seen the earnings of its shares rise by an average of 18.92% a year, an extraordinary rate of growth – fuelled more than anything by the growth of artificial intelligence.
There have been many markets that have lagged this growth and shrewd diversification has been critical, but ultimately the explosion of technological innovation appears to have picked up where liquidity left off, enabling markets to continue to rise whatever turbulence the world produces.
This then leaves us with a critical question; can it continue? Here investors must contend with two competing arguments.
On the one hand many argue that the explosion of artificial intelligence will result in such enormous productivity gains for companies in the coming years, such higher levels of efficiency and such new innovation that there is more than enough scope to usher in a golden period of stockmarket investment.
On the other though, some contend that enormous investment is being made in artificial intelligence, but it is having little impact on the bottom line of most big companies. In fact, a study by the Massachusetts Institute of Technology found that 95% of large US businesses have yet to turn their AI investment into fresh profits. Instead, they are finding that individual employees are downloading ChatGPT and finding wins in their own jobs, but the company is not yet profiting.
Sceptical voices also chime in that whenever major new general-purpose technologies appear to transform the world, there is an initial wave of optimism, but in reality, it can take decades for this to feed into real economic growth. Whilst all major forecasters believe AI will have a significant impact on productivity, the range of forecasts as to how big this will be in the coming decade vary hugely. In the meantime, businesses are spending hundreds of billions, often funded through debt, in an AI arms race to avoid falling behind.
It can be tempting in this context to look for hard answers from financial advisers and investment managers. “Come on then, which is it?” The truth is, we just don’t know. The complexity of the changes brought by AI upon the world are simply too diffused, too unknowable, to really understand whether we are facing a period of strong stockmarket returns or whether there will be a significant drawdown from stockmarkets along the way, as initial optimism fades.
Our judgement has always been that those who claim to know the answers to these questions are simply pretending to know more about the future than they do.
The good news is that there are techniques which enable sensible investment managers to bridge this divide, found in a disciplined approach which retains high levels of diversification at all times.
Such an approach must acknowledge that during boom periods for particular sectors, a portfolio will not participate as much as it could have. There will always be investors who will look at a diversified portfolio and complain that everything that was not invested in last year’s winners was lost money. Yet, diversification means that if sharp drawdowns do come in particular sectors, such as US technology, then there are sources of resilience to protect portfolios from short-term pain.
The portfolios managed by Albemarle Street Partners use 22 years of data to spread investments across a wide range of geographies, market factors and asset classes. This approach helps to build in investments that rise when others fall.
Such an approach requires acceptance that in order to build resilience into portfolios, we must be willing to accept we may not get all of the gains in the good times, but also offers confidence that when bad times come there are assets that have the potential to protect portfolios through the short-term ups and downs.
Most now agree that history is not over, that turbulence will continue in the world each year, governments will be upended, new technology will transform society but have lows as well as highs.
What does not changes is that discipline and diversification is the only rational approach for an unknowable future, because in the long-term, it is remarkable how effectively stock markets and economies can adapt to change and continue to deliver on the long-term goals of investors.
Charlie Parker is managing director of Albemarle Street Partners. The views expressed above should not be taken as investment advice.