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Investment outlook

2024 midyear outlook: Widening cracks in the investment landscape

Frozen Lake Baikal

Key takeaways

 

Explore the investment outlook by section

 

Widening cracks in the investment landscape

Saira Malik, Chief Investment Officer

“Step on a crack, break your mother’s back” conjures up images of children playfully jumping over gaps between sidewalk squares. As grownups, we can indulge such youthful superstitions as harmless. As investors, however, we recognize the very real risks posed by fissures and fault lines in the economic terrain — and the need to navigate them successfully. This is the challenge we’re facing midway through 2024.

We’ve already seen signs of dangerous ground. U.S. labor market data, for example, has been anything but even. If rising unemployment claims and fewer job openings seem to be paving a path to lower inflation (and a more dovish U.S. Federal Reserve), an unexpectedly robust monthly payrolls report could easily disrupt the route. Overall growth in the U.S. and many other countries has either slowed, turned negative or been subject to greater instability amid a variety of economic obstacles. Divergent monetary policy around the globe, along with intensifying political (and geopolitical) divides, adds to the uncertain footing.

How might investors find their way around these cracks? In our view, the following portfolio themes point in the right direction.

Step toward quality and scale back exposure to the ups and downs of the economic cycle. In equity markets, we’re generally tilted toward higher quality and less cyclicality, given slowing economic growth and still-elevated inflation. U.S. large cap dividend growth stocks and infrastructure companies look especially attractive. We’re also increasingly favorable toward select opportunities in non-U.S. developed markets, especially Japan. Our overall quality bias won’t preclude us from considering a degree of measured risk-taking in some emerging markets, including China. In fixed income, we broadly favor adding credit risk while maintaining a neutral duration stance.

Take the path less traveled for alternative sources of yield and diversification. Today’s environment is well-suited to floating-rate investments such as senior loans, which offer compelling yields and relatively strong fundamentals, as well as a positive supply and demand backdrop. We’re also partial to private credit, whose solid foundation of attractive yields, healthy coverage ratios and ample liquidity has so far allowed it to sidestep potential stress fractures. Lastly, allocating to real assets provides investors with a more diversified source of risk factors.

Plug into the clean energy transition. The long-term trends toward electrification and renewable power appear unstoppable. Opportunities include direct investments in specific clean energy industries like solar and wind, complemented by exposure to more traditional energy sources (e.g., natural gas, nuclear power) that will still be needed to meet energy demand while alternative sources and technologies continue to mature.

From a practical standpoint, few investors can be full-time market seismologists, monitoring every danger zone and anticipating every aftershock before taking their next step. But informed awareness of the risks and opportunities shaping the current landscape may help them avoid cracks — and protect their portfolio’s back.

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.

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.

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. 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. 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. Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.

Nuveen, LLC provides investment solutions through its investment specialists.

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

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