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Following a relatively calm second quarter, global equities endured spikes of volatility in the third, fueled by U.S. recession concerns, an unwinding of the yen carry trade and further signs of deterioration in the Chinese economy. Escalating geopolitical conflicts and U.S. election uncertainty also weighed. Despite these headwinds, major equity indexes posted positive returns, as investors cheered cooling inflation and the U.S. Federal Reserve’s first rate cut of its new easing cycle. Central banks in Europe, the U.K. and China also lowered policy rates, while the Bank of Japan tightened. Emerging market (EM) stocks performed best, followed by non-U.S. developed markets. Currencies broadly strengthened relative to the U.S. dollar, boosting non-U.S. returns for dollar-based investors. The S&P 500 Index was a relative laggard even as it delivered its fourth consecutive quarterly gain.
Key takeaways
- Encouraging headline inflation trends gave many key central banks the runway to lower interest rates, although core inflation stayed sticky. The People’s Bank of China, however, launched stimulus both to kickstart the domestic economy and ward off deflation.
- We anticipate that the U.S. economy will decelerate, leading to a mild recession in 2025. A slowdown is evident in the data on several fronts: Consumer resilience has been choppy, manufacturing activity is contracting and the housing market remains sluggish.
- Our relatively cautious outlook leads us to favor (1) defensive areas like U.S. dividend growers and global infrastructure; (2) exposure to specific EM opportunities in countries like Brazil and (3) Japanese banks and high-dividend stocks.
- On balance, we still generally prefer U.S. over non-U.S. equities for their better defensive characteristics in case of a global economic slowdown.
- Within the U.S., we’re not yet prepared to upgrade our view on small cap stocks, although they have historically outperformed large caps when the Fed initiates its rate-cutting cycle.
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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.
Nuveen, LLC provides investment solutions through its investment specialists.
This information does not constitute investment research as defined under MiFID.
