Escalating Political Uncertainty Drags on Stocks
As last week began, attention was focused on attempts to dial back tensions between the United States and North Korea. As the week progressed, investor focus turned to the backlash over President Trump’s comments in the wake of the violence in Charlottesville. Despite good economic and earnings news, the negatives won out and stock prices fell for a second week, with the S&P 500 Index dropping -0.6%.
Global financial markets are enduring a bumpy phase, largely due to rising geopolitical tensions and domestic political uncertainty. While the damage to equity markets and other risk assets has so far been minor, investors are focusing on potential downside risks that could trigger additional damage.
Read an excerpt of the complete commentary below, or download the entire investment commentary as a PDF.
Key Points:
- Investor attention has been focused on the negatives surrounding geopolitical tensions and the White House.
- Yet, fundamentals such as economic growth and corporate earnings offer good news for equity markets.
- Although we acknowledge there are risks, we believe this equity bull market should persist.
The political climate continues to darken for Republicans. It was another head-spinning week for the Trump administration: The president was broadly criticized for his remarks about Charlottesville, Steve Bannon exited the White House and observers speculated about who would be next. Additionally, the disbanding of two advisory business councils highlighted the widening split between the establishment and populist wings of President Trump’s supporters. Should this type of turmoil persist, it could lead to a wave election against Republicans in next year’s midterms.
The strongest returns for the bull market may be behind us, but we expect stock market gains will continue. We believe the setback in stock prices that occurred over the last couple of weeks should prove to be temporary, as it has been based more on sentiment and political concerns rather than fundamentals. We don’t expect investors will experience the pace of gains they enjoyed during the last eight years, but we believe fundamentals should continue to provide tailwinds for equity markets.
Download Nuveen Asset Management's latest commentary, or read a previous post from Nuveen - Nuveen Evaluates Economic Growth, Recession Risk.
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