Good views from atop the capital stack

Bottom line up top:

• Equities grind higher on earnings and retail investor FOMO. Second quarter earnings season for the S&P 500 is off to an auspicious start. The blended earnings growth rate (combining actual results from the roughly 170 companies that have reported and estimates for the rest) reached +6.4% last week, surpassing the +4.9% projected on 30 Jun 2025, according to FactSet. So far, more companies (80%) have exceeded consensus expectations compared to the 10-year average (75%), albeit by a slightly narrower margin (+6.1% vs. +6.9%).
  
  Solid earnings growth along with better-than-feared inflation and other economic data amid global trade and tariff turbulence has helped the S&P 500 hit a series of all-time highs. A recent influx of buying from retail investors — more than $50 billion over the past month, per Barclays — has also provided a boost. The market has seen a notable resurgence in growth and technology sectors, with Magnificent 7 mega-cap stocks rebounding +42% from their April lows and now constituting more than one-third of the S&P 500’s total market capitalization (Figure 1).
  
  Volatility won’t vanish. However, we’re mindful of potential drivers of volatility that could risk turning recent euphoria into something more like a midsummer night’s scream. That’s not our base case, but we think a degree of caution in an unpredictable environment is prudent.
  
  Technical patterns suggest equity market momentum may be losing steam. In the third quarter to date the S&P 500 has gone 18 days without gaining +1% or more — in contrast to the second quarter, when the index accomplished that feat in 10 of 62 trading sessions, or 16% of the time. Meanwhile, investors may face renewed market turbulence reminiscent of April’s tariff-driven volatility through late summer, as the Trump administration has set an 01 August deadline for trading partners to secure agreements, with only a limited number of deals currently finalized
  
  There’s enough uncertainty to warrant exploring fixed income opportunities where investors can take advantage of elevated yields and attractive total return potential with relatively low default rates.

Portfolio considerations

Among liquid taxable fixed income sectors, senior loans, also known as syndicated loans, are both the highest-yielding (7.93%) and least volatile, as measured by standard deviation of returns (Figure 2). Their floating rate structure makes them less susceptible to interest rate volatility, and thus a source of potentially attractive risk-adjusted returns. A strategic allocation to senior loans has historically proven beneficial to diversified portfolios. Based on positive fund flows into the asset class this year, investors are taking notice.

We continue to see value in higher-quality loans, which are currently yielding 6.5%-8%. But the opportunity doesn’t stop there. A large cohort of loans ($225 billion in total) is trading below par at $95, with a median price of $85 and yield to maturity (3 years) of approximately 16%. These levels offer significant yield and price appreciation potential. Achieving positive outcomes for investors within this cohort requires selectivity, including a disciplined approach to credit underwriting and a focus on actively managing credit risk.

The 2024 theme of dispersion among sectors, subsectors and issuers has continued into 2025. And while the default rate for 2025 is expected to hover slightly above long-term averages, active managers may be able to both cushion against credit deterioration and go on the offensive when fundamental value is mispriced.

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

• macro and asset class views that gain consensus among our investors
• insights from thematic “deep dive” discussions by the GIC and guest experts (markets, risk, geopolitics, demographics, etc.)
• guidance on how to turn our insights into action via regular commentary and communications