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Investment outlook

2023 midyear GIC outlook: Testing the waters

Global Investment Committee
Bringing together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets
A flamingo takes flight out of water

Views from the Global Investment Committee


Key takeaways


Testing the waters: From waiting it out to wading in

Saira Malik, Chief Investment Officer

Our previous outlook, Caught in a holding pattern, likened the quandary of investors seeking a place to put their money to the plight of a plane circling until cleared to land. A similar sense of delay persists today. Many wary market participants are sitting on high levels of cash and cash equivalents. Their rationale: Better to stand safely on shore — and earn what looks like a decent yield in today’s higher interest rate environment — than risk swimming in choppy and uncharted waters.

But when does an abundance of caution turn into missed opportunity? How long is too long to wait for a return to “normal”? And what, exactly, will normal look like across economies and markets?

Inflation stands front and center in this discussion. Historic rate hikes from the U.S. Federal Reserve and other central banks have helped bring inflation down considerably from its 2022 peaks. Even so, inflation in most areas of the world still exceeds the long-term 2% target set by policymakers — potentially signaling that inflation has become structurally higher.

The era of ultra-low interest rates is also clearly behind us. Rates continue to hover at relatively lofty levels, and the Fed is not yet poised to pivot from its tightening trajectory. Staying the Fed’s hand is a resilient labor market with persistently solid wage growth and what may be structurally lower unemployment. Meanwhile, the Fed’s still-hawkish tone has many investors assessing if and when the U.S. will fall into a recession. Growing concern that the dominance of high-flying technology stocks has made this year’s U.S. equity market rally too narrow for comfort is also fostering reluctance to participate.

Investors daunted by this uncertain environment needn’t — and in our view, shouldn’t — stay on the sidelines indefinitely. We suggest a judicious approach to putting cash back to work, focusing on these key tenets:

Dip a toe in first. Water safety specialists recommend gradually wading into a body of water versus diving right in. The same principle applies to investment markets that appear too murky or volatile for full immersion. Investors seeking a yield advantage without plunging into full risk-on mode should consider select areas of the broad bond market, including municipals.

Explore international waters. We continue to see opportunities in emerging markets equities given attractive valuations, the weaker U.S. dollar and looser monetary policy in China. In credit markets, Europe may provide an edge over the U.S. given the strength of the region’s banking system. We’re also identifying ample investment ideas in infrastructure, real estate and other real assets across the globe.

Find an oasis in real estate. The harsh glare of headlines about the beleaguered office sector has created the mirage that all real estate assets should be avoided. But closer scrutiny reveals true pools of potential, particularly in the industrial and multifamily sectors.

The following outlook includes our more detailed map of the economic and market landscape at midyear 2023, with directions to investment destinations where the water may prove warmer and more inviting than in others — provided swimmers exercise caution and stay aware of their surroundings.

As Nuveen’s CIO and leader of our Global Investment Committee, Saira drives market and investment insights, delivers client asset allocation views and brings together the firm’s most senior investment leaders to deliver our best thinking and actionable investment ideas. In addition, she chairs Nuveen’s Equities Investment Council and is a portfolio manager for several key investment strategies.

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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.

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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. 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. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria exclude securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. 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.

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

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