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Weekly Equity Market Commentary

Equities shrug off disappointing jobs report

Equities Investment Council
The Nuveen Equities Investment Council is led by Saira Malik and comprises the firm’s senior portfolio managers averaging three decades of investing experience.
Saira Malik
CIO, Head of Global Equities
Equities Investment Council member Saira Malik

Weekly market update highlights

Global equity markets were broadly positive last week. Gains for the S&P 500, DJIA and Nasdaq came in close to or modestly above 0.5%, while outside the U.S., the MSCI Emerging Markets (1.6%) and ACWI ex-USA (1.o%) benchmarks outperformed the developed-market MSCI EAFE (0.7%). The S&P 500 and the three MSCI indexes have risen in seven of the past 10 weeks.

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Economic week in review

Market drivers & risks

Improvements in global vaccination rates should create opportunities in both emerging markets equities and U.S. small caps.

Risks to our outlook

Inflation concerns are coming into sharper focus. In addition to the sizable gain in average hourly wages, the ADP jobs release showed unit labor costs rising by a higher-than-expected 1.7%. If employers continue to increase pay to attract or retain workers, inflation pressures could be deemed as more than transitory, forcing the Fed to discuss tapering more openly.

Related, we think labor supply constraints may exert a drag on the economy’s return to “normal.” With businesses finding it increasingly difficult to fill positions, we are starting to see signs of flattening mobility, which could hamper economic and earnings growth.

We are mindful that the COVID-19 pandemic remains a serious challenge, despite largely successful vaccination efforts in the U.S. and other developed countries. Continuing to reopen the economy at the current or accelerated pace could present the risk of another spike in case counts, potentially leading to localized or regional shutdowns and an air pocket in the recovery. This would almost certainly weigh on investor sentiment and spark further volatility.

Best ideas

Improvements in vaccinations and economic reopenings make U.S. small caps particularly attractive. We are also seeing near-term opportunities in Europe, which looks relatively inexpensive and should benefit from continued easy monetary policy. We favor industrials that will likely benefit from publicly funded infrastructure investments and higher capital expenditures. We also remain bullish on emerging markets over the long term and expect necessary efforts to stem the spread of the virus will eventually take hold.

In focus: Capex marks the spot

While capital spending by S&P 500 companies has remained depressed since the beginning of the pandemic, we anticipate a potentially significant rebound across multiple sectors if our expectations for a sustained economic recovery are met. Information technology and consumer discretionary should lead, followed by consumer staples, materials and industrials. At the opposite end of the spectrum is energy, where capex is likely to dip further this year before recovering in 2022.

We expect capital investment to be bolstered by U.S. semiconductor and pharmaceutical companies looking to reduce their dependence on China. Another driver may be the Biden administration’s proposed infrastructure program. While not yet finalized, it could benefit a wide range of transportation, broadband, manufacturing and water and power projects. Longer term, capex could also climb as industrial companies, especially steel and cement producers, seek ways to cut emissions. Additionally, if demand for copper and other raw materials remains strong, an expansion of mining facilities may be on the horizon.

Investors seeking to participate in the approaching capex revival may wish to consider focusing on megatrends such as the expected tremendous surge in demand for electric vehicles over the next decade (and electrification more broadly). These developments could benefit investable industries involved in everything from mining to power grid updates to the burgeoning use of batteries and electronic components in cars, household appliances and other everyday items.

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Endnotes

Sources

All market data from Bloomberg, Morningstar and FactSet

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. Past performance is no guarantee of 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 nuveen.com. Please note, it is not possible to invest directly in an index.

A word 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.

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