The Investment Landscape Is Shifting And Growing More Challenging
Importantly, however, we also do not believe we will return to the low-volatility, relentlessly rising market environment that investors enjoyed in 2017. The era of moderate economic growth, rising profit margins, low or falling inflation and hyper-accommodative monetary policy is now over. In its place, we are seeing stronger and more durable economic growth, rising bond yields, higher inflation and slowly tightening monetary policy.
This isn’t a bad environment for stocks, but it is more complicated. This backdrop is likely to put more pressure on equity valuations and contribute to higher levels of volatility (as we saw last week). As a result, we think investors should expect lower long-term returns and higher volatility. This is typical of later stages of an economic expansion and equity bull markets. And while it doesn’t mean gains are finished, it does mean investors may have to become more selective.
Robert C. Doll is chief equity strategist at Nuveen Asset Management.
1 Source: Morningstar Direct, Bloomberg and FactSet.
2 Source: J.P. Morgan Research