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Equities Could See a Setback, But This Bull Market Isn’t Over Weekly Investment Commentary U.S. stock prices sank last week. The S&P 500 Index fell less than half a percent and is still up over 6% for the year, but the small cap Russell 2000 Index declined 2%, making it marginally up for 2017.1 Within the S&P 500, the energy and real estate sectors were hit the worst last week, while technology performed best.1 In other asset classes, Treasury yields rose in anticipation of a March 13, 2017 | Volume 5.11 Key Points ▪▪ The equity rally appears to be taking a breather, as investors await signals about the economy, political backdrop and Fed policy. Fed rate hike this week, the U.S. dollar declined and oil prices fell sharply.1 ▪▪ We expect the Fed will raise rates this week and are watching for signs that the central bank may be becoming more aggressive. Weekly Top Themes ▪▪ On balance, we think equities and other risk assets still appear attractive. 1. The labor market continues to be a source of economic strength. February’s data showed healthy growth of 235,000 new jobs and a decline in the unemployment rate to 4.7%.2 Additionally, wages rose 2.8% year-over-year.2 This should be a positive for consumer spending, but may also drag down corporate profit margins. 2. Th e Federal Reserve’s forward guidance will be key. Following the strong labor data, we expect the Fed will raise rates this week. Perhaps more important than the actual hike will be the accompanying statement. The Fed may signal a more hawkish tone that could indicate more aggressive future rate hikes than investors currently anticipate. 3. Th e geopolitical backdrop remains a risk for investors, but we remain optimistic about economic growth. Financial markets face many uncertainties, including the French election, ongoing debt issues in Greece, a more aggressive North Korea and political uncertainty in the United States. On balance, however, we think additional fiscal stimulus around the world should boost global economic growth. 4. The U.S. energy sector may remain under pressure. Energy stocks have struggled this year, with that sector down 5% compared to the broader market up 6%. As a result, the energy sector has given back all of the relative gains posted in 2016. We expect energy companies may continue to struggle, given that rising oil inventories will likely put a cap on oil prices. 5. I nvestor sentiment may be overly optimistic. In our view, investors may be overlooking economic and political risks. We are not bearish toward equities and other risk assets, but we believe markets could be vulnerable to shocks and volatility is likely to rise. NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE 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. Equities Could See a Setback, But This Bull Market Isn’t Over Investors Await Financial Market Signals Equity markets have rallied strongly since the election, but appear to have settled into more of a trading range in recent weeks. Investors may be taking a pause, looking for catalysts that could determine the future direction of equity prices. The state of the global economy could provide one such set of signals. U.S. economic data have been generally strong over the past several months and business and consumer confidence seem to be rising. Outside of the United States, growth appears solid, and we may see an uptick in global trade levels. There are still risks to the global economic outlook, including the slowing Chinese economy and rising protectionism around the world, but on balance we think the world economy should accelerate unevenly. The recent sharp drop in oil prices is another possible sign for equity markets. Some investors wonder if we will return to the 2014 and 2015 period when collapsing oil prices triggered a corporate earnings recession and downturn in equities. However, today the world is no longer in the midst of a broad deflation crisis as it was then. We do not expect oil prices to crash, but expect downside pressure to persist. This week’s Fed meeting is also a source of intense focus. The advance in Treasury yields last week looks to be a signal that bond markets are finally accepting the rising fed funds rate, which should provide a floor for bond yields. Given evidence of stronger economic growth, we could see the Fed become slightly more aggressive about its rate policies, but probably not to the point that it would derail the equity bull market. On balance, we think the risks are skewed to the upside for stocks. While we could see higher volatility and a near-term correction, we expect equities to move higher over the coming year. ▪ March 13, 2017 2017 Performance Year to Date Returns Weekly S&P 500 Index Dow Jones Industrial Average NASDAQ Composite Russell 2000 Index Euro Stoxx 50 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 Bloomberg Barclays U.S. Aggregate Bond (bonds) BofA Merrill Lynch 3-Month Treasury Bill (cash) YTD -0.4% -0.4% -0.1% -2.0% 1.4% -1.1% 0.5% 0.3% 0.1% 6.4% 6.4% 9.1% 0.8% 5.3% 2.3% 5.4% 4.2% 7.5% -0.2% 4.1% 0.4% 5.2% -0.5% 7.6% -0.6% -0.4% 0.0% 0.1% Source: Morningstar Direct and Bloomberg, as of 3/10/17. 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. “Investors may be complacent and volatility is likely to rise, but we retain a generally positive outlook toward risk assets.” For more information or to subscribe, please visit nuveen.com. 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. The Russell 2000 Index measures the performance approximately 2,000 small cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. Euro Stoxx 50 is an index of 50 of the largest and most liquid stocks of companies in the eurozone.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. Bloomberg 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. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. A WORD ON RISK This information represents the opinion of Nuveen Asset Management, LLC and is not intended to be a forecast of future events and this is no guarantee of any future result. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. 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. Non-investment-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. ©2017 Nuveen Investments, Inc. All rights reserved. Nuveen | 333 West Wacker Drive | Chicago, IL 60606 | 800.752.8700 | nuveen.com GPE-BDCOMM2-0317P 23711-INV-W-03/18 1 Source: Morningstar Direct, as of 3/10/17 2 Source: Bureau of Labor Statistics