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Heading into year-end, broader equity market leadership remains a key theme, extending beyond technology to a more diverse array of sectors and geographies. At the same time, the tech landscape itself is being reshaped by structural change. These dynamics create potential opportunities and risks.
Key takeaways
- The U.S. artificial intelligence (AI) investment cycle has shifted from planned capital expenditures (capex) to financial market absorption. Investors most likely to be rewarded by the AI trade are those who can distinguish durable, diversified franchises from those whose legacy applications are exposed to AI disruption or competitive pressure from leading-edge frontier AI models. At the same time, broader participation across financials, infrastructure and select small- and mid-cap equities suggests the opportunity set is expanding beyond the most obvious AI beneficiaries.
- In non-U.S. developed markets, we see expanding leadership beyond the technology sector. European financials are benefiting from a regulatory tailwind, and industrials from electrification and capex trends. Japanese equities also warrant attention amid resilient corporate earnings, improving corporate governance and capital discipline and record buyback activity, which together help offset risks stemming from the Bank of Japan’s monetary policy normalization.
- In emerging markets (EM), dominance by a few AI hardware names, most notably semiconductor makers in Asia, is being tested as the materials, energy, health care, financials and consumer discretionary sectors post double-digit gains. We favor HALO (heavy assets, low obsolescence) investments as a durable complement to concentrated AI exposure, especially regulated utilities and power generation companies positioned to meet surging electricity demand.
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Endnotes
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. Performance data shown represents past performance and does not predict or guarantee 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.
Dividend yield is one component of performance and should not be the only consideration for investment. Dividends are not guaranteed and will fluctuate. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
Because infrastructure portfolios concentrate their investments in infrastructure-related securities, portfolios have greater exposure to adverse economic, regulatory, political, legal, and other changes affecting the issuers of such securities. Infrastructure-related businesses are subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, costs associated with environmental and other regulations, the effects of economic slowdown and surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. Additionally, infrastructure-related entities may be subject to regulation by various governmental authorities and may also be affected by governmental regulation of rates charged to customers, service interruption and/or legal challenges due to environmental, operational or other mishaps and the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards. There is also the risk that corruption may negatively affect publicly funded infrastructure projects, especially in emerging markets, resulting in delays and cost overruns. In addition, investing internationally presents certain risks not associated with investing solely in the U.S., such as currency fluctuation, political and economic change, social unrest, changes in government relations, differences in accounting and the lesser degree of accurate public information available, foreign company risk, market risk and correlation risk. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
Important information on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
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This information does not constitute investment research as defined under MiFID.