Nuveen: 2024 Midyear Outlook

Key takeaways

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.

Source: https://www.nuveen.com/en-us/insights/investment-outlook/2024-midyear-outlook