Global Markets More Correlated to US Than Ever, Says Franklin Templeton Strategist

Market Reaction to US Government Shutdown

• 📈 Markets opened higher due to the US Senate passing a deal to end the government shutdown, recovering from recent wobbles.
• ⚠️ The shutdown's length has made it difficult to assess current economic data, leading to a period of "flying blind" for economists.
• 💡 Historically, markets rally after shutdowns, and this pattern appears to be repeating.

US Economic Outlook and Federal Reserve Policy

• 📊 Indications suggest US economic growth is strong, despite the lack of recent data.
• ⚖️ The Federal Reserve's current interest rate policy is considered appropriate, as forecasted inflation has not materialized.
• ❓ There is ongoing debate about the long-term neutral real interest rate.

Impact of US Tariffs on European Companies

• 📉 European companies are experiencing a greater impact from US tariffs, with many reporting hits to profitability.
• 💰 Corporations are currently absorbing the cost of tariffs rather than passing them on to consumers, suggesting tariffs are effective from a US perspective.

European Earnings and Market Opportunities

• ✅ European companies have reported decent numbers this quarter, and the backdrop for earnings into 2026 should be improving.
• hesitancy among European analysts to upgrade forecasts presents an opportunity for investors.

Global Market Correlation and US Influence

• 🌍 Since 2008, global equity markets have become increasingly correlated to the United States.
• 🚀 This heightened correlation is attributed partly to the growth of US tech giants like the "Magnificent 7."
• 📈 A US rate-cutting cycle is expected to benefit global markets, particularly emerging markets, which historically perform best during such periods.