United States

We consider the possibility that lower interest rates could lead to an increase in household borrowing, prolonging the economic recovery.

Our quant model shows Democrats winning the election at a 56% probability, with 303 electoral college votes. But swing state economies are slowing and Democrats’ odds in Michigan fell. Trump can win with Georgia, Michigan, plus one other state. Neither the Fed nor China’s stimulus should reduce one’s odds of a Republican upset.

Markets are rallying on Fed rate cuts and China stimulus but there will also be October surprises ahead of the US election, which Trump could still win. Russia’s conflict with the West is escalating and the Middle East is destabilizing further. Investors should favor US bonds but they should add some risk in emerging markets in response to China’s policy turn.

China’s Politburo announcement is likely to lead to a repricing of China’s growth in the near-term. Read how investors can hedge against this potent threat to our defensive investment stance.