Hopefulness and confidence about the future look to prevail. This month, we look to the refreshing and insightful perspective from Bob Doll/Nuveen:
- After holding steady for more than a month, stock markets have been rising noticeably over the last couple of weeks as investors grow more positive about prospects for economic reopening.
nvestorsmay be overly optimistic, as we expect economic reopening will likely be bumpy, especially if we see new coronavirus surges.
- While we think stocks can still make advances as economic clarity emerges, volatility is likely to remain high and the outlook is challenged.
Stocks rose again last week, marking the first time since mid-April that equities enjoyed gains for two consecutive weeks.1 Investors appear increasingly optimistic over prospects for economic reopening and are taking solace in signs of improving economic data that indicate the U.S. may have seen the bottom for the current recession. The S&P 500 Index rose 3% last week, with economically sensitive cyclical areas such as industrials and financials faring the best.1
Following the low on March 23, stocks rallied the subsequent month before stalling. Markets appear to have reaccelerated based on excitement over economic reopening, newfound momentum in credit markets and hopes for additional fiscal stimulus. Interestingly, while stocks have rallied, bond yields have not moved higher, which suggests an upward move may be overdue.
Despite improving economic data and unprecedented amounts of monetary and fiscal stimulus, our view remains cautious toward economic growth and equity markets. Many countries and states within the U.S. are moving quickly to reopen their economies despite continued risk of secondary surges of coronavirus. We expect economic reopening to be bumpy, which could cause some setbacks. However, if we do not see a notable uptick in new cases over the coming months, economic growth could improve faster than we expect and risk assets could avoid another downturn, especially as policymakers around the world are fully in pro-growth mode.
At this point, investors have turned optimistic toward prospects for the economy and are banking on ongoing stimulus. This confidence has allowed stock prices to move higher and recover well more than half of the losses suffered in February and March. In our view, investors may be overly optimistic. The economic outlook remains uncertain and corporate earnings will struggle to fully recover. We think stocks could still enjoy some upside potential if and when the economic outlook becomes clearer, but modest economic growth and a likely uptick in long-term inflation after 2021 present a challenging backdrop for both stocks and bonds.
Source: Bloomberg, Morningstar and FactSet
As always, we continue to believe that one’s circumstances and risk profile should determine the appropriate mix of investments, and not media headlines. Please contact us if you ever have any questions or concerns about your accounts or any news you hear.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, asset class, or investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels. Information in this commentary is gleaned from third party sources, and while believed to be reliable, is not independently verified.
Original Article: https://www.nuveen.com/bob-doll-weekly-commentary