Exhibit 99.2 2019 OUTLOOK Expect a tougher climb Brian Nick Chief Investment Strategist PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES. NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
2019 Outlook Expect a tougher climb — Global (and U.S.) growth will slow but shouldn’t turn negative in 2019 — We expect most asset classes to see slightly better performance next year — We think investors should stay invested and keep putting money to work — Investment selectivity will be crucial in 2019 PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES.
Exhibit 1� The U.�. economy was the only positive �surprise� in 201� Global (including U.S.) U.S. Citi Economic Surprise Index 100 75 50 25 0 -25 -50 -75 -100 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Nov 18 Source:Source: Bloomberg, Bloomberg, Citi. Citi. The The Citi Citi Economic Economic Surprise Surprise Index Index gauges gauges the theextent extent to which to which economic economic data datareleases releases diverge diverge from consensusfrom consensus forecasts, forecasts, with rising index levels indicating morewith risingupside index surprises. levels A indicating “0” score indicatesmore upside economic surprises. reports Data that as met of 30consensus Nov 2018. expectations. Reports that exceed expectations are given a “1” and those that fall short receive a “-1.” The index calculates the net score of all economic reports on a weekly basis. Data as of 30 Nov 2018. and a stronger U.S. dollar stressed the global financial system, and China’s economic policy in particular, 2018 in review — by encouraging capital flight. It’s no wonder investors began to focus on the crosscurrents and fading Let’s not do that again tailwinds that we anticipated would hit in 2019 a bit ahead of schedule. And, as investment managers, Despite solid global economic growth, 2018 turned it’s time we did the same. out to be the most challenging year for investors in a decade. The U.S., the world’s largest economy, expanded at its fastest pace of this cycle. Sales and profits climbed for global corporations, while central banks kept interest rates at well-below-normal rates. What’s in store Yet, as we near the end of 2018, few major asset for investors in 2019? classes have outperformed cash. What happened? This much is true: U.S. economic growth surpassed Let’s start with what we do not expect to see in our expectations coming into the year. The Tax Cuts 2019: a recession in a major economy. But—there’s and Jobs Act, passed late in 2017, sent economists always a “but”—economic growth is set to slow in and Wall Street analysts scrambling to estimate its both the U.S. and China while failing to bounce effects. We now know that U.S. consumer spending back convincingly in the eurozone, Japan or United and private investment surged—at least temporarily— Kingdom (Exhibit 2). This slower growth tips the as tax rates fell. U.S. corporate profits rose by balance of risks toward the negative. An unusual over 25% in the second and third quarters. But as amount of uncertainty remains on key questions like Exhibit 1 shows, in contrast to 2017, positive economic the direction of corporate credit spreads and the U.S. surprises (i.e., economic performance relative to dollar, but we are more confident that market returns expectations) were essentially limited to the U.S. will improve only moderately from their lackluster Results in the rest of the world were disappointing. 2018 showing. Despite this— or, rather, because of it—our investment teams are focused on finding We feel this disappointment wasn’t due to any opportunities to buy and own high quality assets single factor, but rather to a confluence of moderate without becoming too defensive in their approach. headwinds. Higher global tariffs and uncertainty They’re walking a fine line, to be sure. about more on the way restricted country market access and drove up costs. Rising U.S. interest rates PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES. 1
2019 Outlook Exhibit 2� �lightly slower global growth expected in 2019 2018 2019 Japan U.K. Eurozone U.S. China India 0% 1% 2% 3% 4% 5% 6% 7% 8% Source: Blue Chip Economic Indicators. Data as of 30 Nov 2018. We’re also discovering that the parts of the 2017 tax bill meant to serve as more than just a short-term Fading tailwinds, stiffer stimulus may not be achieving their intended results. Stronger U.S. private investment early in 2018 headwinds gave way to disappointing capital spending growth by the third quarter as companies became more Global growth received a boost in 2018 when wary of spending on new software and equipment. the U.S. opted for a late-cycle fiscal expansion, Residential investment has also been a drag, and borrowing nearly $1 trillion to fund tax cuts and slower home price appreciation has put a cap federal spending. Nuveen estimates that in 2018, on construction. If the investment boom is truly these measures added more than 0.5% to U.S. gross tapped out and worker productivity growth remains domestic product (GDP) growth and helped lift S&P low, rising wages—the product of a tight U.S. 500 sales and profits. But most of the positive effects labor market—will become a stiffer headwind for of this stimulus have already begun to wear off and corporate profitability. will vanish almost entirely by 2020. In their place we’ll find tighter financial conditions (Exhibit 3) Where might the world turn in 2019 to replace thanks to rising interest rates, wider corporate bond the boost it’s just received from the U.S.? China’s spreads, falling equity market valuations and, yes, government has attempted a large monetary and new and rising taxes on international trade. fiscal stimulus to help support its economy amid attempts to de-risk its financial system. We should be seeing the effects of that effort more in 2019, which could produce upside surprises to growth in Asia. In addition, we’re looking for signs of We think increased selectivity economic strength in Brazil on the back of some pro-growth reforms and for low inflation to pave within asset classes, with the way for another year of robust growth in India. a focus on quality and valuation, will yield the best results. 2 PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES.
Exhibit 3: Global financial conditions are tighter on rising rates and a stronger U.S. dollar Bloomberg Global Financial Conditions Index 2 0 -2 -4 �ighter -6 -8 -10 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source:Source: Bloomberg.Bloomberg. The Data Global as of Financial 30 Nov 2018. Conditions Index measures market conditions across money markets, bond markets and equity markets. The scores compare current market conditions to the historical average, with lower numbers indicating tighter financial conditions. Data as of 30 Nov 2018. so unless and until the Fed shows signs of slowing or other central banks become less accommodative. “Slower” doesn’t mean Keep in mind that even if the Fed stops raising rates, its ongoing balance sheet shrinkage will effectively “negative” continue the tightening process. The resulting increase in the supply of high quality bonds—aided Expectations are not particularly high for growth and abetted by a booming federal deficit—could in developed markets outside the U.S. in 2019— push up longer-term interest rates and corporate and that may actually be a good thing. With borrowing costs. less room to disappoint, the eurozone and Japan are positioned to deliver above-trend growth A broader base for growth should help cushion while keeping monetary policy exceptionally against a global recession—technically defined as accommodative—historically a friendly operating negative GDP growth for two consecutive quarters— backdrop for companies and the investors who despite a deceleration in both the U.S. and China. own their stocks. These markets may also benefit In our view, there is little chance the U.S. will go into from a pause—if not a reversal—in the trend recession before late 2020 given continued strength of the strongly rising U.S. dollar. While a strong in consumer and business activity confidence, dollar provides a temporary advantage to especially the strong labor market. We would expect international firms selling into the U.S., it also to see a material degradation in these and other raises the cost for borrowers with dollar liabilities leading indicators at least a year before the economy and drives investment flows away from many begins to contract (Exhibit 4). And while it’s not hard places that need them. to find areas of risk that could eventually contribute to a recession, we don’t see the types of massive Of course, the fate of the dollar may rest primarily macroeconomic imbalances that helped turn the in the hands of the Federal Reserve. The Fed has past two recessions into genuine market crises. been slowly but steadily raising short-term interest rates for three years and seems primed to hike Why do we care so much whether growth merely at least twice more in 2019. In the Fed’s view, the slows from its current pace or turns negative? currently low unemployment rate could generate Recessions, or so-called “hard landings,” have higher inflation, which demands tighter policy. historically been associated with 20%+ drops in With rates rising in the U.S. but flat or down in most equity markets, falling interest rates and sharply of the rest of the world, the dollar has been far and higher unemployment. Decelerations, also referred away the best-performing currency. We think it to as “soft landings,” have not. is now well above its fair value and could remain PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES. 3
2019 Outlook Exhibit �� Leading indicators suggest the U.�. expansion still has legs Leading Economic Indicators (% YoY) 20 15 10 5 0 -5 -10 -15 -20 -25 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2018 Source:Source: Conference Conference Board, Board, Bloomberg. Bloomberg. The Shaded Leading areas Economic indicate Indicators recessions. Index isData produced as of 30by theNov Conference 2018. Board and is a composite of economic data. Negative readings indicate a growing possibility of a recession. The data show year-over-year changes in this index. Shaded areas indicate recessions. Data as of 30 Nov 2018. The crucial question is whether investors who buy risk assets at this stage—cheaper though they Most investable assets are may be—would be better served by moving to cash and awaiting an even more attractive entry point. now available at lower prices We don’t think so. But given our view that both economic and earnings growth are likely to slow It’s hard to put a happy face on the swoon in over the medium term, relying on broad market global risk assets that occurred during the fourth trends to boost portfolio values may no longer suffice. quarter of 2018. As of this publication, few major Instead, we think increased selectivity within asset asset classes have bested cash this year—never classes, with a focus on quality and valuation, a welcome development for an investor (let alone will yield the best results. an investment manager). If this cloud does have a silver lining, it’s that financial markets are already pricing in a moderate global slowdown heading into 2019. So while our investment committee is far from ebullient in its outlook, our investment What if we’re wrong? leaders generally expect better returns in their At its year-end meeting, the Nuveen Global respective markets next year. Investment Committee coalesced around a cautiously One reason for this is that most publicly traded optimistic outlook for 2019. At the same time, we assets offer higher yields today than they did a year also took time to discuss a critical question for our ago (Exhibit 5). Interest rates have risen, and credit clients: What if we are wrong, especially on the spreads have widened. In addition, global equity downside? What would that look like in the real world valuations have fallen, in some cases substantially. and what would that mean for our clients? Most likely, And while there are important exceptions, like wheat we’d see a flatter yield curve, driven by sharply higher and natural gas, most commodity prices will end short-term rates (the Fed’s response to perceived 2018 lower than where they began. In short, during overheating, perhaps) or sharply lower long-term a year in which economic fundamentals generally rates, typically a product of recession risk. In this improved, market prices remained flat or fell. This scenario, credit spreads would widen, earnings and creates value. stock valuations would be lower, and the direction of the U.S. dollar would be uncertain. 4 PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES.
Exhibit �� Average yields for ma�or asset classes are higher heading into 2019 U.S. high yield (left axis) Global equities (left axis) U.S. municipals (right axis) Yield % Yield % 7.5 3.2 7.0 3.0 6.5 2.8 6.0 2.6 5.5 2.4 5.0 2.2 Jan 18 Feb 18 Apr 18 Jun 18 Jul 18 Sep 18 Oct 18 Source: Bloomberg. Bloomberg. Representative Representative indexes: indexes: U.S. U.S. high high yield: yield: Bloomberg Bloomberg Barclays Barclays High Yield High Corporate Yield Corporate Bond Index; Bond Global Index; equities: Global equities: MSCI All Country MSCI All World Country Index; World U.S. municipals:Index; BloombergU.S. municipals: Barclays Bloomberg Municipal BarclaysBond Index. Municipal Indexes Bondare unavailabl Index. Indexese for direct are unavailableinvestment. Pleasefor direct see investment. endnotes for Data index as definitio of 30 Novns. Data 2018. as of 30 Nov 2018. Our downside scenario also includes an unanticipated Virtually the only refuge for investors seeking escalation of event risk in two key areas: Brexit positive returns during a period of acute event risk and trade. The U.K. seems determined to leave the or recession is long-duration, high quality bonds. European Union (EU) in March, but the precise On the equity side, while few stocks could eke out nature of its departure is still a huge source positive returns in a bear market, defensive sectors of uncertainty for global investors, particularly like consumer staples and health care would likely throughout Europe. A “crashing out” scenario— beat technology and financials. Moreover, established one in which the U.K. exits without a deal in place commercial real estate and defensive real assets like to manage the transition and tips itself into farmland could help provide at least a partial shield recession or, worse, stagflation—is not our base against the forces of the public markets. case, but it remains a serious risk until Parliament agrees to a plan. Tariffs also seem destined to plague markets for at least another year. The steady escalation in the tit-for-tat between the U.S. and China, resulting in Conclusion: seeking quality at higher bilateral taxes on a broader basket of imported goods, has produced no clear winner but plenty of a fair price in a slowing world losers: U.S. producers facing higher costs and Chinese When the dust clears, the global economy in 2019 may not consumers and businesses losing access to U.S. farm behave all that differently than it did in 2018, but we are and energy output. The negotiations at this point hopeful for better investment returns across most public and appear to hinge more on politics than economics, private asset classes. The world is slowing, but only gradually. which means the resolution of this dispute is beyond Furthermore, we believe a global recession and bear market our current ability to forecast. But should new U.S. are still at least a few years away, leaving room for portfolios tariffs spread beyond measures that have already with risk assets to benefit. This view provides some of our been announced or threatened, the damage to the best thinking about investment opportunities. U.S. economy and investor sentiment could be severe. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES. PLEASE SEE IMPORTANT DISCLOSURES IN 5 THE ENDNOTES.
About Nuveen Nuveen, the investment manager of TIAA, offers a comprehensive range of outcome-focused investment solutions designed to secure the long-term financial goals of institutional and individual investors. Nuveen has $988 billion in assets under management as of 30 Sep 2018 and operations in 16 countries. Its affiliates offer deep expertise across a comprehensive range of traditional and alternative investments through a wide array of vehicles and customized strategies. For more information, visit TIAA.org. Endnotes Source: FactSet and Bloomberg for market and economic data This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. 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