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Investment Outlook

The economy and markets

Global Investment Committee
Nuveen’s Global Investment Committee (GIC) brings together our most senior investment leaders from across the firm.
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Section 3

Key points to know

Economic cracks are emerging.

The U.S. and global economies continue to expand at a healthy pace. We anticipate growth will start to decelerate over the balance of the year, and that dynamic is starting to play out in the data. After several consecutive quarters of upside surprises, key indicators are starting to show softness. Job creation has turned uneven, with a sharp deceleration in April followed by a resurgence in May. Other labor market data – including job openings, the quits rate and surveys of business sentiment – have been showing signs of weakness.

Meanwhile, the outlook elsewhere remains tepid. In Europe, conditions have improved but overall economic growth remains weak, with manufacturing facing fresh headwinds. Property sector woes and weak consumer sentiment are negatives in China, though growth has stabilized across emerging markets.

Sticky inflation? Yes. Stagflation? No.

After the first quarter U.S. GDP print showed disappointingly weak headline growth and surprisingly sticky inflation, investors faced the prospect of an unwelcome mix of weak growth and high inflation. However, we think both halves of the stagflation concern are overblown. Though real GDP grew at only a 1.3% annualized rate in the first quarter, that number is somewhat misleading, as growth was dragged down by a -1.3% hit from inventories and net exports. We’re penciling in a slowdown to around 2% by year end, which still represents a decent level of growth.

On the inflation side, core services prices have proved sticky over recent months, as we expected. We anticipate some modest easing in key areas like housing over the balance of the year, but movement is likely to be slow and uneven. The progress has been better elsewhere in the world. Core inflation in Europe and Japan is down to annualized rates of 2.9% and 2.5%, respectively, while consumer prices have been overall flat in China.

Global monetary policy divergence is back.

These varying economic and inflation outlooks across countries and regions translate into divergences in monetary policy. The European Central Bank and Bank of Canada cut rates in June (following earlier cuts in Switzerland and Sweden), and we expect additional cuts in the coming months. The U.S. Federal Reserve is likely to hold off in the near term, while the Bank of Japan should keep moving in the opposite direction, hiking rates again by year end (Figure 2).

Figure 2: Global interest rates should remain (mostly) high

We have not seen this degree of global monetary policy divergence since 2016. Historically, varying policy actions have resulted in increased volatility across economies and markets. Ultimately, central banks tend to resynchronize, with neither the most-hawkish nor most-dovish forecasts being correct. In the current context, we think the Fed is unlikely to completely buck the global trend toward lower rates, but it is also likely to move slower than many expect. If the Fed cuts once or twice this year the overall level of U.S. interest rates will remain quite elevated versus history.

The Fed will likely cut rates this year, but the pace of rate cuts may be slower than many expect.

Investors anxiously focus on election season.

The recent election results in Mexico and India serve as good reminders that politics can drive financial market risks (both the AMLO landslide in Mexico and the BJP party failing to win a clear majority in India elevate some legislative risks). The focus on the November U.S. presidential and congressional elections has been intensifying, as voters and investors alike wonder how different outcomes could shape the direction of the economy and markets.

Overall, we expect market volatility will rise as we approach the U.S. elections, but regardless of the outcome, the removal of uncertainty should eventually calm markets and possibly inject a modicum of risk-on sentiment. U.S. tax policy is of particular importance, given the scheduled expiration of the 2017 Trump-era tax cuts. If the results skew more Republican, those cuts are likely to be extended or made permanent. In contrast, clean energy tax credits would likely be expanded with a more Democratic result. Additionally, the U.S. must tackle rising debt levels, although we doubt significant spending cuts will occur regardless of the outcome. Health care and energy policy, the regulatory environment and trade issues are also very likely to evolve after November.

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All market and economic data from Bloomberg, FactSet and Morningstar.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on Please note, it is not possible to invest directly in an index.

Important information on risk
All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not appropriate for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy. Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.

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