Download Equities Could See a Setback, But This Bull Market Isn`t Over

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.
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1 Source: Morningstar Direct, as of 3/10/17 2 Source: Bureau of Labor Statistics