Where Can Investors Find Value in These Markets?
The recent behavior of equity and bond markets creates a conundrum for investors. Equity markets are rallying based largely on expectations for stronger economic growth, while bond yields have been falling and seem priced for economic stagnation. Which signal is correct? The economic environment may grow more complicated in time, but for now we expect acceleration to continue.
Read an excerpt of the complete commentary below, or download the entire investment commentary as a PDF.
Cautious Optimism Toward Equities, with Escalating Risks
- The global inflation backdrop is shifting from deflation to reflation. In our view, consumer prices are set to rise in many markets, while pending fiscal stimulus around the world should contribute to broader inflationary pressures.
- Despite the recent decline, we expect Treasuries and other government bond yields to rise. We think the 1.37% 10-year Treasury yield reached last summer marked a secular low, and we expect yields to move unevenly higher.
- The maturing economic cycle could benefit active equity management. As tailwinds from monetary policy fade, equity markets should begin focusing more on company fundamentals such as earnings quality and specific valuation metrics. We believe this will increase dispersion between individual securities, which should benefit stock selection and active management.
- Economic confidence may fade over the coming year. Clarity around tax and regulatory policy would help, but we expect economic uncertainty to rise. Higher interest rates and a rising U.S. dollar could also be negative for the economy over time. Inflation is not yet problematic, but it may begin slowing global economic growth in the coming years
Download Nuveen Asset Management's latest commentary, or review their economic predictions from January.
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