5. President Trump’s standing in the polls is adding to political uncertainty. Last week’s polls showed more Americans believe the economy is worsening rather than improving for the first time since the start of the Trump Administration. This decline casts further confusion on the likely outcome of trade and other policy issues.

6. Brexit complications are adding to global political uncertainty. Prime Minister Boris Johnson’s move to suspend Parliament raises the odds of a messy, no-deal Brexit.

7. U.S. stock prices have barely moved since the start of last year. Global equities peaked in late January 2018. Since then, U.S. stock prices have moved sideways while global markets have slowly moved lower. With trade uncertainty and other geopolitical issues weighing on economic sentiment, we think corporate earnings prospects are coming under greater risk.

Stock Prices Are Likely To Remain Trendless For Some Time

The escalating trade war has increased worries over a possible recession. Determining where this trade dispute is headed has become nearly impossible, but it still seems clear to us that both the U.S. and China are being hurt by the dispute and both countries would benefit from a deal. At this point, we expect some sort of resolution and an easing of tensions (if not a long-term solution) after the 2020 U.S. elections. The danger, of course, is that the longer the trade war continues, the more damage it causes.

Renewed easing by the Federal Reserve and other global central banks has been a counterbalancing force. It is looking highly likely that the Fed will again lower rates this month, given that the conditions remain that triggered the July cut (uncertain trade conditions and a weak global economic environment). In our view, U.S. economic conditions do not warrant further easing, especially since the labor market and consumer sector remain resilient. But the Fed apparently wants to provide some economic insurance.

Stocks are caught between these two competing forces. Given wild short-term market swings that come from quickly shifting, inconsistent and often contradictory trade policies from the Trump Administration, trying to position portfolios to respond to trade policy changes does not appear practical. Rather, we think investors should continue to focus on long-term fundamentals such as valuations and corporate earnings prospects. At present, we have a broadly neutral view toward equities and are concerned about weakening earnings and profits. As such, we continue to believe that this is a time for investors to remain flexible and selective.

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

1 Source: FactSet, Morningstar Direct and Bloomberg
2 Source: Commerce Department
3 Source: University of Michigan

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