Risks Appear Tilted to the Upside for Stocks
Although economic data was positive and earnings continued to be strong, U.S. equities were mixed last week. Markets appear to be in a holding pattern, with investors waiting for more news on Federal Reserve balance sheet normalization and tax policy.
For several months, volatility has remained low while equity prices have grinded unevenly higher. This has prompted many investors to look for signposts that could cause a change in direction. Possible dangers could include the end of emergency zero-interest-rate policies, high global debt levels, slow productivity growth or political instability caused by such issues as widening income inequality or rising protectionism.
Read an excerpt of the complete commentary below, or download the entire investment commentary as a PDF.
Key Points:
- Investors are waiting for a catalyst that could cause a sustained positive or negative breakout in equity markets.
- Risks appear relatively balanced to the upside and downside, but we think equity markets will likely continue grinding higher.
The odds of a recession appear low, but so does a significant acceleration in growth. The regulatory environment is loosening, consumer spending appears solid and jobs growth remains strong. As such, we do not expect a recession any time soon. At the same time, however, we see no catalyst to push the economy into a higher gear unless the White House and Congress make progress on their pro-growth agenda.
Active large cap equity managers continue to enjoy solid results. This group had another strong month in July, with 58% of managers outperforming their benchmarks. This marks the fifth consecutive month of out-performance, the best streak since 2009.
Download Nuveen Asset Management's latest commentary, or read a previous post from Nuveen - Economic Data Offers Mixed Signals.
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