2022 Q4 GIC outlook:
Not out of the woods yet
Views from the Global Investment Committee
- Not out of the woods yet
- Portfolio construction themes
- The economy and markets
- Our best investment ideas
- The risks causing elevated volatility (especially inflation) are likely to persist, but we are not anticipating a deep or prolonged recession.
- Markets may offer better value now than they did a few months ago, but we would caution investors to be wary of value traps.
- We prefer a mostly defensive stance and see better opportunities in credit markets compared to equities. We also like real assets such as farmland.
Not out of the woods yet
Saira Malik, Chief Investment Officer
Finding the path forward
Our previous outlook, “From pain to gain,” offered a cautiously optimistic view on market performance and portfolio construction amid one of the most volatile investment environments in memory. That guarded perspective and positioning yielded mostly positive results for much of the summer, but investor confidence dissipated in the face of relentless global central bankers determined to rein in historically elevated levels of inflation — even if doing so meant sacrificing economic growth.
Looking toward the balance of 2022, one thing is clear: We are not out of the woods yet. Both the global economy and global investment markets continue to be waylaid by familiar risks.
That doesn’t mean investors have to wander the woods with no trail markers. In the U.S., for example, even if the Federal Reserve’s inflation-fighting pushes the economy into recession, the combination of resilient labor markets and household balance sheets leads us to believe that any such downturn would likely be mild and relatively short-lived.
As you’ll see in this report’s detailed discussion of portfolio construction and our revised asset class “heat map,” we are focused on three primary themes:
- Preparing for the inflation fever to break is more than a short-term investment play. Because it’s impossible to predict exactly when inflation will finally peak, we continue to favor real asset categories that historically have proven less volatile, weathered high-inflation periods well and provided diversification benefits.
- The bear won’t be morphing into a bull any time soon. Nuveen’s data-driven Bear Market Tracker offers signals as to when equities may find their bearings and begin to move closer to bull market territory. Based on current readings, this is unlikely to happen in the near to medium term, so we are maintaining a somewhat bearish view toward equities.
- Avoid getting trapped. While bear traps in the woods may be easy for the human eye to spot, value traps in investment portfolios can be less obvious. Relying too much on what appear to be attractive short-term valuations can ensnare investors in ways that greatly diminish long-term outcomes. We suggest ways to avoid these traps while staying attuned to genuine value opportunities when they arise.
There’s no question this has been a confounding and challenging year for markets, and we still have a way to go before we emerge from the murk of bearishness into the light of “normalcy.” In the meantime, we continue t0 seek glimmers of incremental economic progress and asset allocation ideas to help investors stay on the path toward their long-term objectives.
As Nuveen’s CIO and leader of our Global Investment Committee, Saira drives market and investment insights, delivers client asset allocation views and brings together the firm’s most senior investment leaders to deliver our best thinking and actionable investment ideas. In addition, she chairs Nuveen’s Equities Investment Council and is a portfolio manager for several key investment strategies.