Despite Roadblocks, Expect the Bull Market to Continue...
Following a down week for stocks, investors adopted a risk-on approach, moving back into equities. While the damage from Hurricane Irma was devastating in terms of human costs, the economic impact was less severe than feared.
The S&P 500 Index rose 1.6% last week and all major U.S. indices reached new highs. As part of the broader outperformance trend among risk assets, Treasuries were weaker across the yield curve last week, the dollar rose slightly, gold prices fell and oil moved higher.
Read an excerpt of the complete commentary below, or download the complete commentary as a PDF.
Key Points:
- Investors returned to stocks last week, helping equity markets reach new highs and turning the current bull market into the second-strongest in history.
- There are reasons for concern, but we believe the current economic expansion will continue and this bull market still has legs.
Inflation may be creeping higher. Inflation has been virtually nonexistent for months, but that may be starting to change. The Consumer Price Index rose a more-than-expected 0.4% in August, the strongest gain in five years. Price advances were due to a number of factors, including higher lodging costs and surging automobile prices.
Washington appears to have a brief window to enact tax cuts. The recent agreement to raise the debt ceiling and fund the government through the end of December gives President Trump and Congress some breathing room to act on tax reform. If we don’t see significant action over the next couple of months, the probability of any tax legislation being passed is likely to drop significantly.
Despite its longevity and strength, we don’t believe the current bull market is approaching an end. The U.S. remains in an environment of solid growth and easy monetary policy. We think we would need to see some combination of economically damaging political turmoil, decisively higher bond yields and/or a material drop in the value of the dollar to cause an end to this bull market. None of those events appear particularly likely.
Download Nuveen Asset Management's latest commentary, or read a previous post: BlackRock Sizes Up Hurricane Relief and the Fiscal Cliff.
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