Transcript:
Caroline Woods: Joining me now is Brian Griggs, Head of Portfolio Strategy Group at Nuveen Brian, great to have you here at the desk.
Brian Griggs: Thank you. It’s great to be here.
Caroline Woods: So it looks like this record breaking government shutdown may finally be nearing an end. Market is certainly celebrating that this morning. I’m curious about how bullish of a catalyst it will actually be, though for stocks, given the fact that it wasn’t all that much of a drag to begin with?
Brian Griggs: I would agree, I think it helps more than it hurts the direction of stock prices, but honestly, I think the stock market has been focused more on three things. One, very strong Q3 earnings where we’ve seen on aggregate companies beating to the upside, two, anticipation of Federal Reserve Federal Reserve rate cuts and three likely the continued investment by the I complex in terms of CapEx and investment fueling those AI gains. So that’s what’s working for this market
Caroline Woods: Yeah that’s right. What’s the biggest risk for this market now that the government shutdown might be off the table?
Brian Griggs: Well, I think we are starting to see pretty dire consumer sentiment readings, particularly drawn down by the lower end of the consumer household segment. And I think that there is a risk that some of that negative household sentiment could spill over into the actual hard data. We aren’t seeing signs of that yet. Other than that, I think more and more investors are talking about the increased concentration of some of the mega-cap tech stock names. So that’s a dynamic we’re to continue to monitor as we go forward into 2026.
Caroline Woods: Do you think that the catalyst, the positive catalyst though outweigh those potential risks. I guess the bigger question is, where do stocks go from here. Can they go back to rally mode or is it continued choppiness ahead?
Brian Griggs: Well, I think we’re going into a seasonally strong part of the year. And on top of that, we’re having strong fundamental readings, strong earnings announcements on top of anticipated rate cuts. I think all of those catalysts are near-term bullish for the equity market. But longer term, from a portfolio construction standpoint, it’s hard to argue that starting value valuations today aren’t elevated, and that’s going to draw down long term expected returns for equity market investors.
Caroline Woods: Do you expect AI and big tech to continue to power this market higher?
Brian Griggs: I think that we will see in the years ahead a broadening out of how AI is implemented across corporate America, and that should help with profit margins, certainly, but it’s a little bit of a paradox, because if we do see that could argue that could only increase the importance of these mag seven names and their weight in the index. So I think the story here is really to maintain that exposure, particularly to those select AI companies. But make sure you’re diversified across your equity portfolio, lean into higher quality names, dividend growth companies listed infrastructure names with more defensive characteristics to make sure that you don’t get whipsawed by being overly concentrated in just a handful of stocks.
Caroline Woods: I saw in your notes that you really called the durability of AI spending a key focus. What are you watching for. To see if this CapEx cycle really has staying power?
Brian Griggs: Well, ultimately, all of these CapEx investments, they need to show revenue generation at some point in the future. I don’t think we’re there yet. I think the projected demand for AI services is enough to warrant the increased spending in the AI space, but it’s certainly something that we’re monitoring. We’re trying to understand the fundamentals of all these individual companies and their different relationships in the AI ecosystem, and that’s really the key going forward to identify those winners and losers in the AI space.
Caroline Woods: You talk about more rate cuts as a potential catalyst. Seems like it’s pretty split in terms of if we’ll see another cut come December. I think you called it a coin toss. What could tip the balance either way.
Brian Griggs: Well, the market’s I think leaning a little bit more towards a rate cut now than a pure coin toss in December. But generally speaking, we’re calling for three rate cuts at some point over the next 12 months. We’ve been in a little bit of a blind spot for economic data with this shutdown. Now that shutdown could be nearing an end, we should see a little bit more visibility into the strength of labor markets. We have seen, according to the challenger report, the highest number of announced layoffs this year. Even once you correct for the DOGE government shutdown. Or the government cuts. Since since the GFC. So I think weakening labor market should give the Federal Reserve more cover to continue the path of rate cuts from here, but we’re keeping a close eye on services, inflation, commodity prices to make sure those rate cuts don’t cause a reignite cycle of the inflation dynamic.
Caroline Woods: I understand why a deteriorating economic picture is good news for those who want rate cuts, but how is that good news for the stock market?
Brian Griggs: Well, to an extent, I think it’s helpful for valuations. Certainly if the risk free rates come down or base rates come down, but earnings growth is still very front and center. I think the good news is that on a forward 12 month basis, average analyst expectations for S&P 500 earnings are still at about 14% which is elevated versus history. Now granted, if you look at just those AI companies we mentioned before, they’re about double that. So a lot of this sentiment, a lot of the confidence in the earnings growth story is very much dependent on this small cohort of stocks. But it’s not just the AI names. I think that’s the key message here. So as long as growth fundamentals remain healthy and valuations should be supported by lower or lower Fed funds rate, we probably lean more constructive than the opposite when it comes to US equities.
Caroline Woods: And you talked a bit about portfolio construction, exposure to AI but diversification. I also saw you call real estate. Yeah the comeback kid. So is that just because you’re anticipating lower interest rates that will help fuel more sales?
Brian Griggs: I think as markets become more and more dependent on a smaller portion of these indexes, allocators, investors, they’re going to be looking for more opportunities for diversification from just public stocks. And that’s where private markets comes into play. So not just real estate, but certainly real estate aligns with our theme of generating income in the private markets through areas like real estate, private credit, farmland to build more durability into the overall portfolio mix. But certainly with commercial real estate, we think that the bottom is behind us. We’ve seen a more positive supply demand dynamic, with new constructions and deliveries coming down from their peaks, and we’re starting to see positive price performance as well. At the aggregate level. So we’re picking our spots, but we think it’s a good entry point.
Caroline Woods: And dig into farmland a bit more. Why is that the ultimate portfolio. Diversifier and if I’m an investor tuning in, how do I invest in farmland?
Brian Griggs: Yeah, well, it’s a unique asset class for sure, for sure. And it’s an area that Nuveen has had a long history in managing institutional farmland assets. It can give you that defensive portfolio exposure while also having a real asset characteristic with inflation fighting properties. So we’re at the stages now where we think it’s going to become a more popular asset class in portfolios, and Nuveen is working hard to bring that to market for different investors.
Caroline Woods: All right. We’ll leave it there Brian, really appreciate your insights. Thanks so much.
Brian Griggs: Thanks for having me.Caroline Woods: That’s Brian Griggs, Head of Portfolio Strategy at Nuveen.