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Weekly Equity Market Commentary

Equities rebound with a late rally to finish higher

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

Last week started with a substantial selloff over global risk concerns, but by Friday’s close the S&P 500 was back above its 50-day moving average. The S&P 500 (+0.5%) and DJIA (+0.6%) finished up, while the NASDAQ closed flat. The September FOMC meeting was in line with expectations, and investors remained confident after the Fed signaled that QE tapering will begin ‘soon.’ China’s Evergrande situation continues to evolve, but global contagion concerns have begun to abate.

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Market drivers & risks

Economic week in review

Volatility will persist as investors process macro headwinds. However, drawdowns could represent buying opportunities, as we expect economic and earnings growth to continue.

Risks to our outlook

The near-term path of least resistance could be falling market returns due to COVID-19 headwinds, tax and regulatory risks from legislative plans, supply chain issues and corporate warnings.

Political risks regarding the debt ceiling are the highest in a decade. Although a U.S. debt default is unlikely, there will be a lot of discussion about it in the coming weeks.

Markets are beginning to assess the expected impacts of increasing the corporate tax rate and the minimum tax of U.S. companies’ foreign income.

Despite these risks, the global economy and equity market fundamentals remain strong, and we still think that equity markets will overcome the moving pieces in the macro narrative.

Best ideas

Supportive monetary policy and the prospects for stronger relative earnings growth will be the catalyst for select stocks in cyclically oriented sectors to outperform in developed non-U.S. markets, particularly Europe. We remain bullish on select emerging markets, but continue to monitor China’s property issues and regulatory developments. Near term in the U.S., we favor high-quality reopening stocks and small caps. We continue to advocate for a long-term approach that tilts toward cyclicals and value stocks exhibiting strong earnings growth and pricing power.

In focus: Japanese stocks take a rare turn as global leader

Nearly 32 years ago, the Nikkei 225 Stock Average peaked. Since then, Japanese equities have become essentially synonymous with relative underperformance versus other developed markets. However, the script has recently been flipped: The Nikkei leads U.S., European, Chinese and emerging markets indexes so far in September and Q3.

Japan’s economy has not been driving the gains, with its conspicuously weak PMI readings and subpar GDP growth projections (+2.5%) in 2021. These readings largely reflect lackluster consumer spending, as the country struggled through several lockdowns and a slow vaccine rollout.

However, the resignation of Prime Minister Suga earlier this month opens the door to well-timed elections and new leadership, with the potential to move past COVID-19 and negative consumer sentiment and refocus on growth. Political candidates are promoting fiscal and monetary stimulus, vaccination rates are now accelerating and plans are in place to reopen the country by year-end.

Against this backdrop, the case for select Japanese stocks is based on inexpensive valuations, strong balance sheets, net cash positions and a focus on ESG factors. Banks are significantly overcapitalized and will negotiate with regulators to reinstate share buybacks. The reopening trade could also present opportunities, as tourism names might see better earnings growth in 2022.

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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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