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Nuveen Evaluates Environment for Market Growth, Volatility

Posted by WrapManager's Investment Policy Committee
February 22, 2018


Stocks recover ground as the focus returns to fundamentals...

Stocks rebounded last week as investors appeared to return their focus to improving economic growth and solid corporate earnings. The S&P 500 Index jumped 4.4% and experienced its best week in more than five years. While stocks remain down for the month, they are back in positive territory for the year.

Volatility also declined last week as markets calmed down slightly. Treasury yields rose last week as the yield curve flattened. At one point, the 10-year Treasury yield climbed to 2.94% before declining. While we may see further market volatility, it appears the worst of the recent correction is in the rear view mirror

Read a summary of Nuveen Asset Management's weekly market review below, or download the entire investment commentary as a PDF.

One of our key investment themes for 2018 has been our belief that as economic growth improves, both yields and inflation would rise, causing more volatility. Such an environment can still be good for stock prices, but the road ahead is likely to remain bumpy as economic fundamentals continue to shift.

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 Weekly Themes:

  • Despite the market turmoil, economic fundamentals remain sound. Leading indicators and corporate earnings trends point to a continuation of the economic expansion and bull market. Warning signs to the contrary would include widening credit spreads and/or tightening financial conditions, but those have not materialized.
  • The recent spikes in volatility have been due in part to technical market factors. As markets started to fall, bid/ask spreads widened and highly leveraged low-volatility strategies were forced to unwind.1 In our view, this accelerated selling and contributed to the panic-like conditions early in the week.
  • Last week’s budget deal removes short-term uncertainty from the markets, but could cause longer-term issues. The package will add significant additional short-term stimulus and boost defense spending, which could cause an increase in both economic growth and inflation. It also makes the nation’s troublesome fiscal problems even worse. Additionally, the spending package greatly reduces the risk of another budget fight, but probably eliminates any chance of an infrastructure deal.

For the complete commentary from Senior Portfolio Manager and Chief Equity Strategist Bob Doll, download Nuveen Asset Management's latest commentary. For additional investing insights, download JP Morgan's (updated) Q1 2018 Guide to Markets.

To learn more about Nuveen Asset Management and other Money Managers, give us a call at 1-800-541-7774 or contact us here to speak with a knowledgeable Wealth Manager about your investment portfolio.

PDF Download  Download Nuveen Asset Management's Full Commentary

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