Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 376

When America sneezes, the world catches a ...

After looking dubious for some months, President Trump's chances of winning the next election are roaring back, with his campaign focusing on law and order and re-opening the US economy.

With riots continuing to spring up across the US, law and order has become a powerful platform, particularly among female voters. Added to this, elections are often won or lost on the economy, and there is a growing desire in the US for the economy to open and for workers to return to their jobs. This becomes a stark choice for those idle workers voting to reopen versus remaining in lockdown.

We believe the mainstream polls underestimate Trump's support. The bipartisan divide in the US is strong, and many voters are unwilling to publicly admit their support for the President.

A K-shaped recovery?

Another factor likely to have an impact on the election outcome is, of course, COVID-19. Despite crossing the 200,000 milestone this week, US deaths relating to the virus have dropped materially from a peak weekly count of 17,000 (according to the CDC data) to around 5,000. It is a little surprising that the media has not focused on this statistic, instead preferring to focus on the infection rate. This too has been falling, with average new cases per day falling from above 60,000 in July to around 35,000 in mid September.

We are not sure COVID-19 infection rates will ever hit zero, but maybe they don't need to. If we can learn to live with COVID-19 while opening up business, we believe the economy – including ours in Australia – has a good chance of continuing its recovery.

The discussion about the ‘shape’ of this continues. Will it be a V, W, or U? Perhaps it will be a K – that is, good for some and bad for others. It is difficult to imagine a more conducive environment for e-commerce businesses, with large numbers of people confined to their homes for business, consumption and leisure. This has, therefore, created an enormous inequality between those businesses that are leveraged to e-commerce and those that are not.

Changes afoot at the Fed

The other key support for markets is US monetary policy, with the US Federal Reserve recently announcing a new framework. It's yet another evolution in thinking for the Fed, which has proven increasingly willing to use the tools at its disposal to engineer a recovery in the economy.

The framework suggests that monetary policy during economic expansions should aim for inflation moderately above 2% for some time, providing a boost to employment and economic growth. This contrasts to the Fed under Paul Volcker in the early 1980s, when interest rates were quickly raised to record highs to crush runaway inflation (which was running above 12%) and euphoric commodity, housing and bond markets. This current shift in policy towards a greater tolerance of inflation suggests lower rates will persist for some time, with no pre-emptive tightening; which should support gold, commodities and other inflation-benefiting stocks, as well as equity markets in general.

If history is any guide, when the Fed makes a change of this magnitude, it's worth paying attention. We have long believed that during periods of market dislocation, the actions of central banks are the key drivers of market returns. If a deal on a fiscal stimulus plan cannot be agreed between the Republicans and Democrats, it is likely that the Fed will continue to do the heavy lifting. 

‘Unprecedented’ indeed

In February and March, COVID-19 and the subsequent economic shutdown spooked investors so much that they sent the market vertically down for a total drawdown of 36%. To be fair, no-one living today has experienced a pandemic on this scale.

As time has marched on, however, it is looking increasingly likely that the pandemic was more akin to an exogenous shock than a structural downturn – a black swan event which may see the economy recover faster than most expect.

 

Kristiaan Rehder is a Founder and Portfolio Manager at Kardinia Capital. This is general information only, and has been prepared without taking account of your objectives, financial situation or needs.

 

RELATED ARTICLES

The coiled spring: markets are primed for the year ahead

Trump vs Powell: Who will blink first?

How diversified bond portfolios yield 7%

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

Sponsors

Alliances

© 2025 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.