6. The 2020 U.S. elections could cause a shift in labor policies. Democratic candidates have been advocating for a range of worker-friendly policies, including a higher minimum wage, regulatory changes to make unionization easier, a federal ban on state right-to-work laws and stiffer penalties against workplace violations. Such policies would likely help increase wages, but could also detract from corporate earnings.

7. We don’t expect a substantive trade deal, but modest concessions are possible. The U.S. and China seem far apart on many key areas, but both parties are looking to avoid significant political and economic damage.

Equity Markets Are Likely To Remain Range-Bound

Equity markets and other risk assets have experienced many downside risks since the start of 2018, including a contraction in trade and manufacturing, rising political uncertainty, surging bond yields last year and shifting Fed policy. Yet, U.S. stock prices remain roughly equal to the start of last year, and other risk markets have held up reasonably well.1 Last week was a microcosm of this trend: Stocks and other risk assets barely flinched in the face of fears of a collapse in Saudi oil production and escalating tensions between the U.S. and Iran.

To a large extent, this resilience can be attributed to the underlying strength of the non-manufacturing parts of the global economy and a renewed phase of global monetary policy easing. Given these trends, we do not expect recession risks to grow for the next six to 12 months. Extremely low government bond yields are forecasting a likely recession, but we do not think those signals are accurate. We’re not expecting a sharp rise in yields, but we wouldn’t be surprised to see further upward movement in the near term.

For the time being, we think these important economic and policy supports will remain, meaning that downside risks to stocks may be limited. But at the same time, there are no apparent catalysts that would push prices notably higher. Those would include a rebound in manufacturing (and we see only limited evidence of that happening), and an easing of trade tensions (where meager progress is the best hope). As such, we think stock prices are likely to remain range-bound for now.

Robert C. Doll is chief equity strategist and senior portfolio manager at Nuveen.

1 Source: FactSet, Morningstar Direct and Bloomberg
2 Source: Department of Labor

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