Reasons For Optimism

1) The economic backdrop remains solid.
2) Monetary policy is not yet restrictive.
3) Earnings have been strong and first quarter results look promising.
4) Trade issues are more about rhetoric than reality.
5) Tech company issues are so far more about public relations than fundamentals.
6) Geopolitical risks have been isolated and contained.
7) The Mueller investigation has yet to uncover a smoking gun.

In contrast, our list of negatives are, in many cases, the opposites of the above.

Reasons To Be Cautious

1) Economic growth rates could peak as inflation firms.
2) Central banks could tighten faster than expected.
3) Trade rhetoric could lead to a trade war.
4) Tech sector problems could trigger regulatory risks.
5) Increased government scrutiny could stifle M&A activity.
6) Geopolitical tensions always have the potential to escalate.
7) President Trump could trigger a Constitutional crisis by ending the Mueller investigation.

Although the positives and negatives appear roughly balanced, we are encouraged by the fact that macro fundamentals remain solid even as market volatility has increased. Investors have been rattled by a number of risks, but the overall state of the economy is still good. The consumer sector is strong, corporate profits are growing, capital expenditures are increasing, monetary policy remains broadly accommodative and inflation remains contained.

Over time, we expect markets will return to a focus on these fundamentals, which should provide tailwinds for equity prices. We are keeping a close eye on first quarter earnings results, which could provide a catalyst for a stronger equity environment.

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

1 Source: Morningstar Direct, Bloomberg and FactSet.
2 Source: University of Michigan
3 Source: Adapted from J.P. Morgan Research, Bull / Bear Debate, March 30, 2018.

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