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Equities Rally as Oil and
Monetary Policy Remain in Focus
Weekly Investment Commentary
Volatility remained high last week as U.S. equities regained some ground,
with the S&P 500 Index rising 1.8%.1 Stocks soared on Friday in response
to the Bank of Japan’s decision to adopt a negative interest rate stance. Oil
prices also rose over speculation that global production might fall. Corporate
earnings were mixed, as results continued to be held back by the long-term
decline in lower oil prices, a soft economic backdrop and the strong dollar.
Weekly Top Themes
1. Fourth quarter gross domestic product growth was soft. The economy grew
an anemic 0.7% last quarter, with growth held back by slowing consumer
spending and the first decline in business investment since 2012.2 A slowdown
in inventory investment also detracted from results.2 For the year as a whole,
2015 growth increased a respectable 2.4%, matching the pace seen in 2014.2
2. Last week’s Fed meeting came with no real surprises as the central bank
adopted a slightly more dovish tone. The Fed noted somewhat weaker
economic growth, but also sounded upbeat about demand and employment
indicators. Policymakers also indicated that inflation remains low and stated
they were “closely monitoring global economic and financial developments.”
Absent a quick and dramatic economic improvement, we do not expect another
interest rate increase before June.
3. The energy sector continues to weigh on corporate earnings. With over half
of companies reporting fourth quarter results, earnings are beating expectations
by 4.9% and revenues are missing by 0.3%.3 Earnings-per-share are on track to
be flat for the quarter, and up about 6% excluding energy.3
4. Consumer confidence may be slowly improving. The Conference Board’s
Consumer Confidence Index increased 1.8 points in January, beating
expectations.4 Consumers may be looking past equity market weakness
and focusing on the positives.
5. The anticipated “oil dividend” has yet to appear. Since oil prices started falling
in 2014, many observers (us included) expected to see an increase in consumer
and business spending. It doesn’t appear that this has yet occurred, and it looks
to us as if most individuals are saving their extra disposable income rather than
spending it. We expect consumer spending to rise, but acknowledge that lower
oil prices have so far caused more pain than benefits.
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February 1, 2016 | Volume 4.5
Key Points
▪▪ Equity prices rose as markets continue to
follow the lead from oil prices.
▪▪ Over time, we expect oil to stabilize and
believe that global monetary policy remains
a tailwind for risk assets.
▪▪ Turbulence is likely to continue, but for
those who can tolerate the swings, we think
it makes sense to stick with a pro-growth
investment stance.
Robert C. Doll, CFA
Senior Portfolio Manager,
Chief Equity Strategist
Bob Doll serves as a leading member of the
equities investing team for Nuveen Asset
Management, providing reasoned analysis
through equity portfolio management and
ongoing market commentary.
Follow @BobDollNuveen
on Twitter
Equities Rally as Oil and Monetary Policy Remain in Focus
A Pro-Growth Stance Makes Sense, but Requires Patience
Investors have grown more risk-averse in recent weeks with slowing growth in
China, oil price volatility, weakness in manufacturing and Fed policy topping the list
of concerns. Economic data has generally been stronger than reflected by financial
market movements, and investors seem to be ignoring positive economic news and
overly focusing on the negatives.
At this juncture, we think investors have three options: (1) retreat and unload risk
assets in anticipation of a recession, (2) pause, become slightly more conservative
and await more clarity, or (3) maintain a pro-growth stance and accept that more
near-term turbulence may occur before risk assets experience a sustained upturn.
We think the first strategy is overly pessimistic and believe economic fundamentals
are better than what is priced into the market. The second option may be reasonable
for investors who are having difficulty weathering the current volatility. But for
investors with long-term time horizons, we think option three is most prudent.
It may take some time, but we expect that oil prices should stabilize and cease
being the main determinant of global financial market prices. The long-term drop
in oil should produce some economic stimulus and become more of a positive.
Additionally, global monetary policy remains a tailwind for risk assets. The Fed is
likely to raise rates, but any increase should be measured and slow. And last week’s
news from Japan reiterates that policy around the world remains in easing mode.
Investors are also awaiting signs of a global manufacturing recovery, which would
promote greater confidence in the strength of the world economy.
Our view is that financial markets have overreacted to the negatives. Turbulence is
likely to continue, but we expect both equity prices and bond yields to rise over the
course of 2016. ▪
February 1, 2016
2016 Performance Year to Date
Returns
Weekly
S&P 500 Index
Dow Jones Industrial Average
NASDAQ Composite
FTSE 100 (U.K.)
DAX Index (Germany)
Nikkei 225 (Japan)
Hang Seng (Hong Kong)
Shanghai Stock Exchange
Composite (China)
MSCI EAFE (non-U.S.
developed markets)
MSCI Emerging Markets
Barclays U.S. Aggregate
Bond (bonds)
BofA Merrill Lynch 3-Month
Treasury Bill (cash)
YTD
1.8% -5.0%
2.3% -5.4%
0.5% -7.8%
2.6% -5.9%
0.6% -9.4%
1.2% -8.2%
3.3% -10.6%
-6.1% -23.7%
1.5%
-7.2%
4.5%
-6.5%
0.5%
1.4%
0.0%
0.0%
Source: Morningstar Direct and Bloomberg, as of 1/29/16.
All index returns are shown in U.S. dollars. Past performance
is no guarantee of future results. Index performance is
shown for illustrative purposes only. Index returns include
reinvestment of income and do not reflect investment
advisory and other fees that would reduce performance in
an actual client account. All indices are unmanaged and
unavailable for direct investment.
“We expect to see both equity
prices and bond yields rise over
the course of 2016.”
For more information or to subscribe, please visit nuveen.com/weekly-commentary.
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The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. The Dow Jones Industrial Average is a price-weighted
average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the
NASDAQ stock market. FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. Deutsche Borse AG German Stock
Index (DAX Index) is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese
companies listed in the First Section of the Tokyo Stock Exchange. Hong Kong Hang Seng Index is a free-float capitalization-weighted index of selection of companies from the Stock Exchange of
Hong Kong. Shanghai Stock Exchange Composite is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.
MSCI EAFE Index is a free float-adjusted market capitalization weighted index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging
Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Barclays U.S. Aggregate Bond Index covers the
U.S. investment grade fixed rate bond market. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes
reinvestment of all income.
RISKS AND OTHER IMPORTANT CONSIDERATIONS
The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and
may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should
not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any
specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investments
are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or
fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Noninvestment-grade bonds involve heightened credit risk, liquidity risk, and potential for default. Foreign investing involves additional risks, including currency fluctuation, political and
economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. Past performance is no guarantee of future results.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.
©2016 Nuveen Investments, Inc. All rights reserved.
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GPE-BDCOMM1-0216P 13614-INV-W-02/17
1 Source: Morningstar Direct, as of 1/29/16 2 Source: Commerce Department 3 Source: FactSet 4 Source: Conference Board