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Weekly Commentary

Growth and technology rise ahead of earnings

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

Highlights

Most global equity markets rose last week as economic data was generally neutral-to-positive. In the U.S., the S&P 500, DJIA and NASDAQ each added 2% or more during a week of relatively light trading volumes ahead of a highly anticipated earnings season. Elsewhere, the MSCI ACWI ex USA and the MSCI EAFE each added over 1%, while their emerging market counterpart lost 0.6% as two of its largest constituents (China and India) were in negative territory.

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Weekly overview

Market drivers & risks

We see solid long-term investments in value styles and in select cyclical areas, as well as compelling near-term growth opportunities.

Risks to our outlook

Headline economic data may create pockets of volatility, as inflationary shocks caused by short-term global supply chain disruptions and year-over-year comparisons will be difficult for investors to ignore.

Though recent Fed comments have seemingly settled investors’ nerves, many remain wary about possible rate increases or asset purchase tapering. The central bank’s messaging will remain one of the most significant near-term risks.

With the clock started on the legislative battle for an infrastructure package, investors should expect news related to its progress to move markets.

New COVID cases and varying vaccination rates across the globe could also create volatility for global equity markets. On a related note, incrementally better news out of the U.S., combined with incrementally worse news elsewhere, has led to a recent strengthening of the U.S. dollar. This is likely to create near-term headwinds for emerging markets.

Best ideas

We see continued tactical opportunities in growth and technology stocks as investors with lofty expectations may be unimpressed by first quarter earnings. In the near term, we continue to favor consumer service sectors, especially in areas where unemployment remains elevated, and we are keeping an eye on industrials that could benefit from publicly funded infrastructure investments. We remain bullish on U.S. small caps, emerging markets and cyclicals for the longer term as the economy reopens, but think those areas could be subject to volatility over the coming months.

In focus: Lofty earning expectations look beatable

We’re mindful that the first three months of 2021 were unique in several respects, making it more difficult than normal to predict the quarterly earnings environment. The U.S. economy roared thanks to a combination of fast and effective COVID-19 vaccinations and larger-than-expected fiscal stimulus. As a result, unlike most recent quarters, analysts were actually revising their earnings forecasts higher as the quarter drew to a close. 

While that could make expectations harder to beat than normal, we still think positive surprises are in store. Consensus expectations are around $40/share for the first quarter, a 20% increase over last year. But we think profits could come in 5% to 10% higher than that, around $43/share.

The uniformly good U.S. economic news notwithstanding, the last quarter brought its share of challenges for companies. Bad weather temporarily slowed manufacturing activity in February, further clogging supply chains for firms already bracing for sharply higher demand. And companies that depend on overseas revenues may have suffered from the effects of the still-raging pandemic in many areas.

Of course, we don’t expect the first quarter to be the “peak” quarter for earnings growth this year. That will likely come in the second quarter, when the comparisons to the “shutdown spring” of 2020 will be easiest. For the year, we expect the S&P 500 to grow their earnings by 25% to 30% on average, moderately above consensus expectations.

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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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