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Weekly Equity Market Commentary

A wild ride to another record high

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

Broad-based developed market indices were net gainers last week, while the MSCI Emerging Markets index lost over 2%. Monday’s volatility, largely driven by COVID-19 Delta variant headlines, led to one of the worst days for equities so far in 2021, but those losses were quickly reversed and the S&P 500, tech-heavy Nasdaq and DJIA all closed at record highs on Friday.

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Market drivers & risks

Economic week in review

The next few months could remain challenging for investors, as continued high volatility and possible near-term market selloffs are likely.

Risks to our outlook

Global equity markets proved last week just how volatile they can be as a result of spiking COVID-19 data. We expect markets to remain highly susceptible to pullbacks as governments continue to deal with new variants. The reinforcement of economic restrictions will almost certainly lead to a slowdown in global growth.

Economic forecasting remains a challenge, and with decelerating growth taking center stage, we suspect equity markets may react poorly to economic data that miss consensus expectations.

Though rate hikes are still likely far in the future and a flattening yield curve will hinder industries such as financials that are more sensitive to interest rate momentum, we suspect inflationary pressures may return as drivers including wage inflation may create more permanent effects.

Any disruptions in the legislative process toward infrastructure stimulus could spark additional bouts of volatility.

Best ideas

We see opportunities in developed non-U.S. markets, particularly in Europe, which appears relatively inexpensive and should benefit from improved vaccination rates, solid earnings growth and a more cyclically oriented economy. In the U.S., reflation and expectations for higher yields could bolster returns for small caps, while select industrial companies should benefit from still-improving economic growth. We are also bullish on emerging markets, specifically Brazil and areas such as China’s lodging and gaming sectors, which stand to benefit from easing travel restrictions.

In focus: Staples: Playing defense during volatility

The consumer staples sector has largely lived up to its reputation in the COVID-19 era, providing defensive positioning during the most volatile periods, while lagging peers during the recovery in equity markets. This trend was highlighted again last week.

It should be noted, however, that the sector experienced a dichotomy of winners and losers as a result of economic restrictions: Manufacturers of household and personal care items struggled to keep up with demand as a hoarding mentality struck consumers in 2020, while leadership shifted to food suppliers and beverage producers thanks to consumers returning (with a vengeance) to restaurants and outdoor venues.

In the current environment, consumer staples may offer investors an opportunity for less volatility, not to mention a degree of protection against inflationary pressures thanks to pricing power. The sector also appears attractive from a relative valuation perspective, sitting at a roughly 5% premium to its five-year historical P/E average versus a nearly 20% premium for the broader equity market.

Looking forward, we believe non-U.S. markets provide some of the most attractive investment opportunities within consumer staples, particularly in Europe. In addition to Europe being among the most ESG-conscious, it is also home to some of the most iconic brands within personal care and distilled spirits; industries with strong ties to two of the world’s biggest consumer markets: China and the United States.

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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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