Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 369

Welcome to Firstlinks Edition 369

  •   6 August 2020
  • 1
  •      
  •   

Weekend market update: The surging US tech index, NASDAQ, took a breather from its all-time high on Friday, falling 0.9%, but the S&P500 held steady to deliver a strong 2.5% rise for the week. Amazingly, it is only 1% below its February high on the back of better economic data and vaccine news. Australian stock markets were up about 1.3% for the week despite the dire conditions in Victoria. The Government announced a relaxation of JobKeeper eligibility taking the cost to over $100 billion.  

***

Imagine you had perfect foresight about COVID-19 at the start of the year, when the S&P/ASX200 opened at about 6,700. You correctly foresaw that by August 2020, the global pandemic with no vaccine on the horizon would kill over 700,000 people among 20 million infections. In Australia, borders would close, cities would be locked down with nighttime curfews, loan deferrals would reach $270 billion, most mortgagors would be on income support and companies would be allowed to trade while insolvent. Thousands of businesses would never recover. The expected budget surplus would become a $200 billion deficit in 2020/21, government debt would head to $1 trillion and the effective unemployment rate would reach 14%.

What would be your prediction of the level of the S&P/ASX200? Down 30%? Down 40%? It is a little over 6,000, a fall of about 10%. In fact, the index falls historically by 10% or more at some stage in every couple of years, so the correction is normal. What happened to the 'unprecedented pandemic'?

We don't know the economic impact. Australian Treasury forecasts were outdated as soon as Victoria shut down. The fiscal cliff has been kicked down the road to 31 March 2021 but thousands of people and businesses will no longer qualify for support, or go onto reduced payments, from September 2020.

In the US, the June quarterly fall in GDP of 9.5% is annualised in the official data releases, creating a headline-grabbing 32.9% decrease.

Before last week's release, the consensus forecasts from professional analysts had a massive 40% range, as shown below, changing significantly month by month. These are all experts at analysing economic data. Michael Metcalfe of Macro Strategy said:

“US second-quarter GDP will provide the most comprehensive measure yet on the depth of the recession. Monthly data has swung wildly during the quarter, prompting first a lurch to a more negative distribution of forecasts, before correcting again. The median - or what used to be known as the consensus estimate - is around negative 30%. However, the fact that the range of forecasts is a full 40% says all that needs to be said on the uncertainty surrounding the release.”

Source: State Street Global Markets, Bloomberg

This week, Marcus Padley explains how to handle this uncertainty in the coming profit (or loss) company reporting season. Marcus correctly predicted the buying opportunity in March and his fund is currently 100% in cash. How will he handle investing in the coming months?

Far less uncertain is Emanuel Datt with his view on Afterpay. Although other analysts have a massive range of forecasts on this company, Emanuel sees a bright future for a brilliant business mode.

Similarly, Andy Budden sees excellent opportunities in the rollout of 5G. This week's ABC TV 4 Corners focussed on different opinions on 5G, but the groundbreaking technology will change our lives. Is it investable?

Then Steve Bennett dives into the subject on many minds, about whether work in office buildings will ever be the same. What are the advantages of working together versus WFH?

Geoff Parrish shows why quality investment grade bonds played a strong role in a diversified portfolio during the recent sell off.

With such close attention on the impact of COVID-19 on residential property prices, Chris Rands breaks the debate into two pieces: while he's relatively sanguine about the short-term impact, he sees more clouds in the medium to long-term bigger picture. Maybe housing is not the usual safe place to hide.

This week's White Paper is Brandywine Global's study of what the post-Covid-19 recovery may look like based on a selection of charts.

Thanks for the lively debates last week with around 100 comments across most articles. Firstlinks is a community where your views add to our knowledge.

 

Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

Latest updates

PDF version of Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website

 

  •   6 August 2020
  • 1
  •      
  •   
banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

Latest Updates

Exchange traded products

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Taxation

Will investors be better or worse off under new housing tax changes?

Housing tax reforms have sparked warnings of market turmoil and promises of greater fairness. But after modelling nearly two decades of property data, the results suggest winners and losers may not be who many investors expect.

Retirement

Three considerations before reshaping your legacy plan

Many retirees hope to leave a legacy. Proposed trust tax reforms could force families to rethink. The question is not how much to leave behind, but whether today's inheritance plans will still make sense as circumstances change.

Investment strategies

Why experienced investors still get markets wrong

Retirement is approaching. Markets are noisy. And every headline seems to demand action. The biggest investment risk isn't fear, greed or market volatility, it often arrives disguised as research and sensible risk management.

Shares

Why pay more for less?

Conditions were stacked in favour of professional investors in 2026. Most still fell short, raising questions about where investors should look for value. Meanwhile, an alternative strategy continued to make its case.

Investment strategies

Bleeding air out of the bubble

Equity valuations have fallen sharply over the past year, yet investors have largely been spared the volatility and losses that typically accompany a de-rating. What explains this unusually orderly reset? Here are five key drivers.

Strategy

Has AI gone rogue?

We worry about AI becoming conscious. But what if consciousness isn't the issue? The more unsettling possibility is a machine capable of pursuing objectives relentlessly, without motives, emotions, or awareness of any kind.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.