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Investment outlook

The economy and markets

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Key points to know

How will the U.S. land? And when?

Headline U.S. economic performance has been solid so far this year. Previous areas of weakness, such as housing, have begun to rebound. Meanwhile, consumer spending has defied gravity, boosted by continued job growth and steady wage gains. Real consumption growth is running at an annualized rate above 4%, an acceleration from last year. But some cracks are emerging. Banks have substantially tightened lending conditions and delinquency rates are ticking up. Surveys point to contraction in manufacturing, while leading indicators within the labor market (e.g., overtime hours) have weakened. We continue to believe the risk of a (probably mild) recession is elevated over the next several quarters, though the timing keeps getting pushed further out.

Concerns about the global economy are growing

Even as U.S. growth has powered ahead, global momentum has faltered. China has disappointed considerably. Expected growth near 6% for this year has been revised down to 5% or less. The post-Covid reopening lacked the expected gusto, and business confidence is faltering. The construction sector, historically a key growth engine, has sputtered. Property sales are now running -20% year-over-year and -50% compared to the 2019 to 2021 average. At the same time, data from Europe are also softening. Business surveys have weakened to their lowest levels since 2020, and exports are contracting. All in all, the global economic landscape looks much less favorable than at any point post-Covid.

We continue to believe the risk of a (probably mild) recession is elevated over the next several quarters.

Compounding inflation problems persist

Exacerbating the difficulty for the European economy, inflation remains stubbornly sticky at elevated levels. Core inflation is +5.3% year-over-year in the eurozone, only marginally lower than its peak earlier this year. In the U.S., incoming data have been substantially more favorable, with annualized core inflation at +4.7%, down almost two percentage points from its peak. That’s still too high for the U.S. Federal Reserve’s comfort. The bottom line: Central bankers can’t relax just yet.

Where to steer the ship

Markets are essentially pricing in no additional U.S. rate hikes, plus cuts of more than 100 basis points in 2024. The yield curves in Europe and other developed markets look similar. Our base case expectation is that the Fed doesn’t enact rate cuts until the second half of 2024. Relatively high cash yields are tempting some investors to maintain elevated cash allocations. But they’ll also need to stay focused on the risks — especially the risk of forgone gains. Historically, long-term yields peak just as the Fed completes a hiking cycle, and tend to rally thereafter (Figure 2). We believe this presents an argument for investors to modestly extend duration rather than overallocate to cash.

Figure 2: Bonds tend to rally after rate hikes end
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All market and economic data from Bloomberg, FactSet and Morningstar.

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 Please note, it is not possible to invest directly in an index.

Important information 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. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not appropriate for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy. Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market.

Nuveen, LLC provides investment services through its investment specialists.

This information does not constitute investment research as defined under MiFID.

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