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Weekly commentary

Equities shrug off employment miss

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

Most broad-based indexes appreciated last week, with the S&P 500 enjoying its third consecutive week of gains and rising seven out of the past eight. The tech-heavy NASDAQ bucked the trend, falling nearly 1.5% as trading favored cyclicals over growth and defensives areas of the market. The DJIA added 2.7%, while the MSCI EM, EAFE, and ACWI ex-USA all rose between 0.1% and 2.6%.

Economic week in review

Market drivers & risks

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

Risks to our outlook

Given the magnitude of the miss in last week’s employment data, investors have likely reset their expectations for the timing of the recovery. As a result, we expect a greater degree of volatility around future economic data, and expect investors may focus on those numbers rather than on Fed comments pertaining to the tapering of quantitative easing.

The debate over tax reform is heating up, as both political parties continue to express a willingness to negotiate. Any negativity surrounding these discussions, as well as the legislative battle for an infrastructure package, will likely create pockets of volatility.

New COVID-19 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

Increased economic reopening and recent underperformance have created opportunities in U.S. small caps. We 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. Tactical opportunities remain in technology and growth stocks, but with a high degree of selectivity, as the “shelter-in-place” trade may no longer provide a broad benefit to all companies. We also remain bullish on emerging markets over the long term, as efforts to stem the spread of the virus eventually take hold.

In focus: Tailwinds for emerging markets equities

Though global equities may appear overvalued when compared to their own history, relative valuations appear to favor emerging markets: Per FactSet, EM equities are currently trading at a 25% discount versus their historical relationship with U.S. equities. Several important tailwinds reinforce this point:

  1. Strong growth from China

  2. A weaker U.S. dollar

  3. Possible incremental improvements in geopolitical outlooks.

  4. A widening growth gap with EM earnings per share 10% higher than in the U.S.

It is also worth considering the duration and magnitude of the cyclical relationship between U.S. and EM equities. During the decade ending in 2019, U.S. equities outpaced EM by approximately 750 bps, on an average annual basis. In contrast, EM equities outperformed the U.S. by 1,250 bps per year during the prior decade (2000- 2009). 2020 may have been a transition year, as emerging markets kept pace with the U.S. and outperformed significantly in the fourth quarter.

Though several EM countries continue to struggle amid the pandemic, we are optimistic that the global economy will eventually follow a similar path to recovery as the U.S. As a result, we believe this is a good time for investors to consider evaluating their exposure to emerging market equities given their solid prospects.

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Dimitri Stathopoulos
United States


All market data from Bloomberg, Morningstar and FactSet
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