“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” ~ Warren Buffett

Markets entered May with no shortage of reasons to worry. Valuations remain elevated, geopolitical risks are obvious, tariffs have complicated the inflation outlook, and the AI rally continues to attract comparisons with previous episodes of speculative excess. Yet the most important market signal is often the simplest one: price.

Despite the noise, equity markets continued to make new all-time highs. That does not mean risk has disappeared. It does, however, suggest that momentum, liquidity and earnings expectations remain stronger than the prevailing narrative implies. When markets absorb bad news and continue to rise, investors should at least consider the possibility that the underlying fundamentals are better than the headlines. Investors also need to remember that risk is not limited to being invested. There is an opportunity cost to remaining on the sidelines while markets compound higher, particularly when cash returns are increasingly vulnerable to inflation and policy-driven nominal growth.

Indeed, the economic data supports a more constructive interpretation. The May ISM Manufacturing survey showed continued expansion, with New Orders strengthening further. New orders matter because they are a forward-looking indicator of corporate demand, production and future revenue growth. At the same time, U.S. business formation remains elevated, suggesting that entrepreneurial activity, risk appetite and private-sector dynamism remain intact. These are not the usual characteristics of an economy rolling over into recession.

This matters because today’s market optimism is not built solely on lower interest-rate expectations. It is also being supported by nominal growth. In a world of fiscal dominance, larger deficits, industrial policy, energy investment and AI infrastructure spending, inflation may remain higher and more volatile than investors became accustomed to during the monetary era. That is a central argument of our Fiscal Age thesis, which readers can download from the Shard Capital website here.

Moderately higher inflation can be uncomfortable for central banks, but it can also inflate nominal revenues, support corporate pricing power, drive new investment and sustain earnings growth. The danger comes when inflation becomes disorderly, compressing margins and forcing bond yields higher. For now, markets appear to be discounting the more benign version: resilient demand, rising nominal GDP and continued AI-led capital investment.

The coming wave of private-market AI and space-related IPOs, including companies such as Anthropic and SpaceX, may further reinforce retail enthusiasm. Meanwhile, many valuation-sensitive and non-U.S. institutional investors remain reluctant participants in the AI rally. If those investors are ultimately forced back into the market by improving fundamentals and rising prices, their current caution may become tomorrow’s source of demand.

The market might seem expensive. But expensive is not the same as fragile. For now, price, liquidity and growth continue to argue that the cycle is not yet exhausted.

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