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Weekly Equity Market Commentary

September seasonality offers buying opportunities

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

Equities finished mostly lower last week as investors continue to work through economic normalization challenges from the Delta variant, the expectation of Fed tapering, input price pressures and economic data concerns. The S&P 500 (-0.5%), DJIA (-0.1%) and Nasdaq (-0.5%) all fell. Though the economy has slowed, it has not been derailed. Our view is that consumers will drive economic and earnings growth into 2022, and market pullbacks might create buying opportunities.

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Market drivers & risks

Economic week in review

Cautious sentiment may continue, but an anticipated resumption in economic and earnings growth merits a constructive narrative for equity markets.

Risks to our outlook

Between healthy retail sales and solid manufacturing surveys, our view appears to be correct that a strong consumer and manufacturing data will be the key drivers of growth. However, this likely increases the chances of a tapering announcement sooner rather than later, and probably starts the clock on actual tapering before year end.

Markets are beginning to assess proposals that would increase the corporate tax rate and the minimum tax on U.S. companies’ income earned overseas.

The near-term path of least resistance for stock prices could be lower, as equity markets may react negatively to a slowing of earnings revisions momentum, the forecast for Fed tapering and stumbling blocks to reconciliation and stimulus.

Despite these risks, global economic and equity market fundamentals remain strong, and we still think markets can successfully navigate the current macro headwinds.

Best ideas

Supportive monetary policy and stronger relative earnings growth in developed non-U.S. markets, particularly Europe, will be the catalyst for select stocks in cyclically oriented sectors to outperform. We remain broadly bullish on emerging markets, but continue to monitor the regulatory environment in China. Near term in the U.S., we are adding to defensive sectors and structural growth stocks. At the same time, we favor a long-term approach that balances these exposures with cyclicals and value stocks exhibiting strong earnings growth and pricing power.

In focus: Semiconductor shortage shows no sign of ending

Of all the supply chain disruptions plaguing the economy, none has been as exasperating as the shortage of semiconductor chips — essential to the manufacture of virtually every modern device, appliance or vehicle with electronic components.

COVID-19-related factory closings and shipping logjams, along with surging demand for consumer electronics, are both contributing to the far-reaching shortage.

The auto industry has been particularly hard hit. One trade association estimates that U.S. carmakers will produce 1.28 million fewer vehicles this year, a number we think may be too low. Meanwhile, the lack of new production has fueled a spike in used car prices, contributing to rising inflationary pressures in recent months.

Relief is also not yet in sight. Our equity research analysts expect sequential improvements in chip availability in mid-2022, which should ease supply bottlenecks, and a possible return to normal by the end of next year. In the meantime, semiconductor stocks have held up reasonably well. Last week they traded to a five-month high relative to the S&P 500 (on an equal-weighted basis).

Looking ahead, we remain structurally positive on semiconductor names and see particular opportunities in companies tied to long-term megatrends in artificial intelligence, 5G, data centers, video games and autos, including electric vehicles.

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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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